Key points:

• The Act introduces new flexibilities for charities which will be largely welcomed by the sector

• The Act will be implemented in stages over the next 12 - 18 months

What are the changes?

The Charities Act 2022 (the "Act") aims to implement many of the recommendations made by the Law Commission in its 2017 report, Technical Issues in Charity Law. The key changes brought about by the new Act are:

Charities will be able to amend their governing instruments more easily, with Charity Commission oversight where necessary. The Act will also more closely align the rules for charities whether they are structured as a company, CIO or unincorporated charitable trust. It will also simplify the process for Royal Charter charities to amend their governing instruments with Privy Council consent without the need for a Supplemental Charter which can be a costly and time consuming process.

The purpose of the current law in this area is to protect charities and ensure that they obtain the best terms when they dispose of charity land. The new Act simplifies the law around disposal of charity land and removes some of the more burdensome rules relating to the advice they must receive when selling land. It introduces more flexibility in terms of the pool of professional advisers charities can access. 

The regime that applies to permanent endowment has also been given greater flexibility. For example, there is a new statutory power to spend permanent endowment which is available for funds up to £25,000 (£10,000), a new statutory power to borrow from permanent endowment and the Act also expands the powers of trustees operating a total return approach to investment when making social investments.

The current law allows charities to enter into contracts with trustees for the supply of services, but does not provide for the supply of goods by trustees (even when on favourable terms) unless specifically authorised in a charity's governing instrument. The law will now extend this flexibility to the supply of goods, subject to certain safeguards and only ever when in the best interests of the charity.

The Act also gives charities more freedom to decide what to do when fund-raising appeals fail to raise sufficient funds for the specific purpose the money was donated for or where the money donated exceeds the amount needed. The new provisions are more straightforward and proportionate. For example, if a charity appeal raises too little money, the charity will be able to spend donations below £120 (made in one financial year) on similar charitable purposes without needing to contact individual donors for permission.

Ex gratia payments

Currently charities cannot make ex gratia payments (i.e. payments where there is a moral rather than a legal obligation to make) without the consent of the Charity Commission but the new Act will give charities the power to make small ex gratia payments. The amount that a charity can make by way of an ex gratia payment will depend on its gross income in the last financial year.

Charity mergers

The Act also removes some of the existing legal barriers to charities merging, including uncertainties around the register of mergers (which has led to many "shell charities" remaining on the register) and, although relevant in wider circumstances, automatically confers trust corporation status on corporate charities allowing them to hold land as trustee.

Implementation

The Act will come into force in stages over the next 12 to 18 months with some areas requiring secondary legislation. The Charity Commission acknowledges that it will require changes to its systems and processes as well as updates to its guidance and online services. The Commission will keep charities updated as the relevant provisions come into force.

Our team of specialist charity lawyers can answer any questions you may have on the changes to the law and how they impact on your individual charity taking into account your own circumstances and plans for the future.