The Charities Act 2006 became law in November 2006.

This briefing explains some of the main provisions of the Act.

Statutory definition of “charity”

Until the Act there was no statutory definition of “charity” or “charitable purposes” and the Charitable Uses Act 1601 remained the touchstone for the classification (rather than definition) of charitable purposes. Pemsel’s Case [1891] recognised 4 principal divisions of charity:

(1) the relief of poverty;

(2) the advancement of education;

(3) the advancement of religion; and

(4) other purposes beneficial to the community

and it was usually by reference to the 1601 Act or Pemsel’s case that the courts decided whether a trust was charitable.

The Charities Act 2006 introduces a new “list” of 12 charitable purposes:

a) the prevention or relief of poverty;

b) the advancement of education;

c) the advancement of religion;

d) the advancement of health or the saving of lives;

e) the advancement of citizenship or community development;

f) the advancement of the arts, culture, heritage or science;

g) the advancement of amateur sport;

h) the advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity;

i) the advancement of environmental protection or improvement;
j) the relief of those in need by reason of youth, age, ill-health, disability, financial hardship or other disadvantage;

k) the advancement of animal welfare;

l) the promotion of the efficiency of the armed forces of the Crown, or of the efficiency of the police, fire and rescue services or ambulance services; and

m) any other purpose recognised as a charitable purpose under existing charity law or which may reasonably be regarded as analogous to or within the spirit of any of the above purposes.

Public benefit

The new Act requires that all organisations with charitable purposes demonstrate that they exist to benefit the public in some way. The Act does not, however, define “public benefit” which will be determined by the Charity Commission and the courts on a case by case basis. The Charity Commission will be launching a consultation on the principles, demonstration and assessment of public benefit. Formal assessment of public benefit is expected to start from April 2008.

New thresholds for registration

The new income level for registration will increase from £1,000 to £5,000. Furthermore, the old requirement for registration where the charity had permanent endowment or the use, or occupation, of land has been removed. Existing charities under the £5,000 threshold may ask to be removed from the register, though they will of course remain charities and be bound by charity law.

Exempt charities

From spring 2008 at the earliest, previously exempt charities will now be monitored by the Charity Commission to ensure that they comply with charity law. The Commission will be able to investigate an exempt charity at the request of its principal regulator.

Excepted charities

Some groups of charities have in the past been excepted from registering with the Charity Commission. The Act will make it compulsory for some of these charities (which include some religious charities, boy scout and girl guide charities and armed forces charities) to register. It appears that initially at least only those excepted charities with an annual income of over £100k will have to register.

Role of the Charity Commission

The advisory role of the Commission has been expanded to a significant degree under the new legislation. Further, the Commission is now tasked with the job of “encouraging charities to maximise their social and economic impact”. These changes have led to concerns that:

a) the increased advisory role will detract from the Commission’s core regulatory role; and

b) the new socio-economic objective will provide an unwanted distraction from their primary objective – to encourage charities to maximise the public benefit.

Charity Tribunal

A new independent Charity Tribunal is established under the Act to review legal decisions made by the Commission. This is expected to begin operating during the course of 2008.

Charitable Incorporated Organisations

The Act creates a new vehicle for charities which require a corporate structure – the Charitable Incorporated Organisation (CIO). This means that a charitable organisation will no longer have to first register as a company and meet the dual regulatory requirements of both the Charity Commission and Companies House.

The CIO will appeal as a vehicle to both new and unincorporated charities. It is also hoped that it will be a straightforward process for charities which are existing companies to convert to a CIO.

Again, the CIO is not expected to be available as an alternative structure until 2008.

Regulation of public charitable collections

New rules will govern public charitable collections by professional and commercial fundraisers.

Such fundraisers must disclose the amount they are being paid for fundraising (or a reasonably accurate estimate).

In addition a new licensing regime will be brought into existence whereby any charity looking to undertake a collection (which includes face-to-face fundraising involving requests for direct debits) must obtain:

a) a “certificate of fitness” from the Charity Commission. This will only be granted where the charity demonstrates that the collection is bona fide for a charitable, benevolent or philanthropic cause; and

b) a permit from the local authority where the collection is due to take place.

This regime is not likely to come into force before 2009.

Trustees

The Act provides that:

1. trustees may be paid for additional services being provided to the charity without first having to obtain authority from the Commission. Trustees may not be paid for simply being trustees;

2. the Charity Commission (rather than just the courts) may now grant trustees relief from personal liability for a breach of trust where the trustee has acted honestly and reasonably; and

3. trustees may take out trustee indemnity insurance using charitable funds without the Charity Commission’s permission, provided the charity’s governing document does not specifically forbid this.