01 April 2006

With... the latest on charity law - Legal Update 2005-06

This briefing note highlights some of the key developments in charity law and related matters that occurred in 2005. It covers new legislation, the Budget and Charity Commission press releases and publications.

It also includes a summary of relevant legislative developments that are likely to occur in 2006 and their potential impact on charities.

Legislative Developments 2005 


Charities Bill

Readings of the Charities Bill took place in the House of Lords in May and June 2005. The bill passed through the committee stage in July and the report stage in October. The third reading took place on 8 November 2005 and the bill will now pass to the House of Commons. See ‘Legislative Changes for 2006’ for further discussion.

The Regulatory Reform (National Health Service Charitable and Non-Charitable Trust Accounts and Audit) Order 2005 (Statutory Instrument 2005/1074)

This came into force on 31 March 2005. The order reduces the burdens imposed on NHS charities by removing the requirement for their accounts to be audited under the National Health Service Act 1977.  It also removes certain burdens in relation to the accounts of NHS trustees of non-charitable trusts.

Charities (Accounts and Reports) Regulations 2005 (Statutory Instrument 2005/572) (SORP 2005)

The Charities Statement of Recommended Practice (‘SORP’) on accounting and reporting by charities was reviewed and revised by the Charity Commission and the new edition was published on 7 March 2005.  SORP 2005 requires charity trustees to put greater emphasis on reporting their charity’s achievements against its objectives. Information is also required on the provision of trustee induction and training and the social, environmental and ethical policies of the charity. Since SORP 2000, several new accounting standards have been introduced and these are included in SORP 2005.

Equality Bill 2005

The second reading of the Equality Bill 2005 took place in the House of Lords on 15 June 2005. The bill includes plans for a new body to tackle discrimination and prejudice – the Commission for Equality and Human Rights (‘the CEHR’).  This body will bring together the work of the Commission for Racial Equality (‘the CRE’), the Disability Rights Commission and the Equal Opportunities Commission. The CEHR will also have responsibility for the new equality areas of age, religion and belief and sexual orientation and will work to promote human rights. The CEHR will be established in October 2007 for all areas except those for which the CRE is responsible, which will be transferred from the CRE to the CEHR in April 2009.

The Donations to Charity by Individuals (Appropriate Declarations) (Amendment) Regulations 2005 (SI 2005/2790)

This statutory instrument amends the Donations to Charity by Individuals (Appropriate Declarations) (Amendment) Regulations 2000. With effect from 1 November 2005, the requirement on charities to write to each individual donor to confirm that Gift Aid can be claimed following their telephone donation has been removed. The criteria for a qualifying donation state that the donor must make an ‘appropriate declaration’.  Previously when a declaration was given orally the charity was required to send a written statement to the donor giving them a 30 day period within which to cancel the declaration. The requirement to write to the donor has been removed provided that the charity maintains satisfactory records linking the donor to the making of the declaration.

Licensing Act 2003

Further provisions of the Licensing Act 2003 came into force on 24 November 2005. The act replaces existing licensing systems.  Charity fundraisers must be sure to comply with the new regulations as a wide range of activities now require  a licence.  

There is now a unified system for regulating entertainments which, together with the sale and supply of alcohol and the provision of late night refreshments, are described under the act as ‘licensable activities’. The types of entertainment that require a licence include: performances of plays; exhibitions of films; indoor sporting events; boxing and wrestling matches (whether indoors or outdoors); performances of live music (whatever size the venue); playing of recorded music and performances of dance. 

Events only require licences if they take place in the presence of an audience for the purpose of entertaining them and they are open to the public or a charge is made (other than solely to cover costs) or guests are invited to give money to charity.  Church halls, village halls and schools will require Premises Licences to hold some events but will not be charged licence fees provided that they do not serve alcohol.  Qualifying members’ clubs can hold events under Club Premises Certificates; these are cheaper than standard Premises Licences. 

A premises user can hold small-scale events involving regulated activities provided that a Temporary Event Notice (TEN) has been submitted to the licensing authority and police at least 10 working days in advance.   An event held under a TEN must last no longer than 96 hours and no more than 499 people may be involved at any one time. TENs can be given for any premises, even those already licensed for other purposes.   There are annual limits to the number of TENs an individual may submit and the number of TENs that may be submitted in respect of an individual location.  £21 must be submitted with each TEN.

Disability Discrimination Act 2005

This act came into force on 5 December 2005 and extended the Disability Discrimination Act 1995 to protect people with HIV, cancer or multiple sclerosis from discrimination on the grounds of their illness and ended the requirement that a mental illness must be ‘clinically well recognised’ before it can be deemed an impairment. Other new duties made it unlawful for private clubs and local authorities to discriminate against people with disabilities.

Gambling Act 2005

The Gambling Act 2005 has created a new independent regulator, the Gambling Commission, to replace the Gambling Board of Great Britain.  By autumn 2007 the act will come fully into force and will establish an improved, more comprehensible structure of gambling regulation, replacing most existing gambling laws.

The act includes three licensing objectives which set out the aims and rationale of gambling regulation.  The objectives provide a standard by which licensees and others can judge the proportionality and effectiveness of regulatory action. These objectives are: preventing gambling becoming a source of crime or disorder; ensuring that gambling is conducted in a fair and open way and protecting children and other vulnerable persons from being harmed or exploited through gambling.

Charity Commission Press Releases and Publications 2005


Selected Press Releases

January 2005 – Tsunami Appeal: Maximise the millions

Charities across the UK have reported an unprecedented level of fundraising activity in response to the tsunami. To ensure collections are made as straightforward as possible, the Charity Commission published guidelines to assist people and organisations  to ‘maximise the millions’ being raised.

17 January 2005 – How can a Charity invest?

Charities have greater freedom than ever before to invest their funds, but should be cautious when doing so. The Charity Commission provided more detail in its new publication ‘Investment of Charitable Funds – Basic Principles’ available on the Charity Commission’s website.

21 February 2005 – Delivering on Public Services

A landmark Charity Commission decision to register the Trafford Community Leisure Trust and the Wigan Leisure and Culture Trust as charities means that charities can deliver public services which public authorities have a statutory duty   to provide.

30 March 2005 – Streamlined Annual Returns

The Charity Commission outlined the steps it is taking to make the annual return process easier for charities. The steps include:

  • adopting a proportionate approach by cutting the number of questions that most charities must answer so they provide essential information only;
  • introducing the Summary Information Return as Part C of the Annual Return. This must be completed by all charities with an income of over £1 million;
  • introducing an Annual Information Update form for charities with an annual income under £10,000 so that they can meet their requirement to inform the Charity Commission of changes; and
  • ensuring that the documents are clearer – they now carry the plain English kitemark.

3 June 2005 – The facts about receivers and managers

The Charity Commission published full details of receiver and manager cases concluded in 2004/5 on its website. These details include the name of the charity involved, details of the receiver and manager appointed, the duration of the case, the costs incurred and the value of the assets involved.

9 September 2005 – How Are Charities Spending Their Money?

The Charity Commission opened up charity finances to instant inspection by making charities’ accounts available on the Charity Commission website.

13 October 2005 – New Era in Public Information about Charities

The Charity Commission launched a system for submitting Summary Information Returns online.

Selected Publications

SORP 2005: What has changed? (April 2005)

This publication provides a broad overview of the changes made to the previous edition of the Charities SORP (SORP 2000), as well as a link to a document showing the differences between SORP 2000 and SORP 2005.

Charity reserves and defined benefit pension schemes (May 2005)

This provides guidance on setting reserves policies for charities operating defined benefit pension schemes.  The guidance, developed jointly with the Charity Finance Directors’ Group, considers how these pension liabilities influence reserves policies and reporting. It also examines how requirements to fund pensions and the resulting cash flow implications affect both charities’ reserves and their risk management strategies.

Code of governance for the voluntary and community sector (August 2005)

The Charity Commission issued guidance to help charities develop good practice.  The code is based on seven key principles that have been designed to apply to any charity: board leadership; the board in control; the high performance board; board review and renewal; board delegation; board and trustee integrity; and board openness.

Trustee Recruitment (August 2005)

The Charity Commission published a regulatory report, ‘Start as you mean to go on: trustee recruitment and induction’.  The Charity Commission says that fewer than 1% of trustees of registered charities are under the age of 24 and nearly three-quarters of them are over the age of 45.  Nearly one-third of charities say it is difficult to recruit young people as trustees.  The report examines some of the reasons for this lack of diversity of trustee boards.  The report finds that, while more charities are planning and preparing carefully before recruiting, too many are still relying on informal methods, such as word of mouth, to recruit.  Informal recruitment methods may have their place but charities risk losing the benefit of having people from all backgrounds involved in their decision making.  The report made three key recommendations for trustee boards:

  • Cast the net widely when recruiting new trustees: Half of all charities surveyed said they face difficulties when trying to find new board members;
  • Give people the tools to do the job: New trustees need the basic tools and information from the outset. For example, the Charity Commission recommends that all trustees should receive a copy of the charity’s accounts and its constitution. Currently only 70% of new trustees get a copy of the charity’s accounts; and
  • Aim for a real mix of people on your trustee board: Diversity of ethnicity, gender, background, age and skills is a valuable asset.

Independent Complaints Review (November 2005)

The Independent Complaints Reviewer for the Charity Commission released its annual report for 2004/5 with the heading ‘Seeking a fair resolution’. The foreword to the report states that ‘the Commission’s approach to complaints handling is well structured, and provides a clear path for complainants to follow.’

CC3 – The Essential Trustee: what you need to know (May 2005)

This new publication replaces the previous CC3, ‘Responsibilities of Charity Trustees’.

HMTreasury Pre-Budget Report December 2005

The Pre Budget Report published in December 2005 reaffirms the Government’s view that ‘The third sector plays a vital role in creating a fair and enterprising society’ and includes several measures by which the Government intends to support the voluntary sector.

  • Establishment of a youth volunteering implementation body led by Rod Aldridge of Capita and made up of young people and representatives of businesses and charities.
  • Establishing a cross-department ministerial group on youth volunteering led by the Chancellor.
  • Publishing in April 2006 a rule book on volunteering and the benefit system.
  • Promoting mentoring for school children and looking after children.
  • Disregarding financial support individuals receive from charities when considering their entitlement to benefits.
  • Investing unclaimed assets in the charity sector with an emphasis on supporting financial education and other work with young people.

The Year Ahead – Key Legislative Developments 2006 

Finance (No.2) Act 2005

Section 11 of the act comes into force on 6 April 2006 and changes the rules that apply to Gift Aid and admissions. Under this act, any charity that grants the public the right to view property that is preserved, maintained, kept or created by a charity as part of its charitable activities will be able to claim Gift Aid on some donations given in return for admission to the property.  A visitor to any such property will be treated as making a Gift Aid donation instead of paying an admission charge if:

  • the right of admission given in return for the ‘donation’ is valid for a period of at least one year and the number of visits within the period is not restricted; and
  • where the right of admission is for less than one year, the amount of the gift is at least 10% more than the amount that any member of the public would have to pay to gain the same right of admission.

Where these conditions are satisfied, the whole of the payment will be eligible for Gift Aid.

Company Law Reform Bill

The Government published its white paper ‘Company Law Reform’ in March 2005. This white paper sets out the Government’s proposals for comprehensive reform of the company law framework to bring it in line with modern business needs. The Company Law Reform Bill was introduced to the House of Lords on 1 November 2005.

The key aims of the reform include improving regulation, applying a ‘think small first’ approach to company law and making it easier to set up and run a company.

These proposals would affect several aspects of the governance and operation of charitable companies and charities’ trading subsidiaries:

  • Electronic Communications: Proposals could benefit charities, for example allowing companies to distribute documents electronically and publish accounts on a website in place of sending hard copies to all members.
  • Annual General Meetings: Proposals could allow charitable companies to do away with holding AGMs and pass written resolutions without the consent of all members.
  • Filing of accounts: The period for filing accounts may be altered. This may have implications for some charities as it is likely that time limits will be shortened.
  • Use of service addresses: Directors of charitable companies may in future be able to use service addresses instead of home addresses without a confidentiality order. This would be particularly beneficial to charities operating refuge hostels or other sensitive activities.
  • Company Secretary: Companies may no longer be required to have a company secretary.
  • Articles of Association: A full set of model articles of association for companies limited by guarantee may be introduced.

The Charities Bill

Part 1 (sections 1-5) defines ‘charity’ and ‘charitable purposes’.

Section 1 defines ‘charity’ as a body or trust which is established for charitable purposes only and is subject to the jurisdiction of the High Court.

Section 2 provides a two-limb qualifying test for charitable purposes.  A purpose will be charitable if it fits within one or more of the twelve descriptions listed in the act and is ‘for the public benefit’.

Current law provides that public benefit is determined on a case-by-case basis.  Although in every category of charity public benefit must be present, the courts have not adopted the same practical measures of public benefit for all categories of charity. Different standards are required for different charitable purposes. The Charity Commission will continue to follow the approach of the court when determining public benefit in any particular case. The Charity Commission will have regard to the social and economic context within which an organisation operates, as well as to the relevant charitable purposes and activities of the organisation.  The bill removes the presumption of public benefit for the relief of poverty, the advancement of religion and the advancement of  education.

Part 2 covers the regulation of charities and is divided into 11 chapters.

Chapter 1 establishes the Charity Commission as a statutory corporation with new objectives, functions, duties and powers.

Chapter 2 covers the creation of a Charity Appeal Tribunal to hear appeals against some types of decision made by the Charity Commission.

Chapter 3 covers the registration of charities and provides for the registration of larger excepted charities and the regulation of exempt charities.

Chapter 4 covers changes to the rules governing the application of charity property ‘cy-pres’. Charity property is said to be applied ‘cy-pres’ when it is used for purposes different from, but similar to, the purposes for which it was  originally given.

Chapter 5 sets out new powers regarding assistance and supervision of trustees by the Court and the Charity Commission. These include new powers for the Charity Commission to suspend or remove a trustee’s membership of a charity when their trusteeship is suspended or removed; to direct charity trustees to take certain actions in administering their charity and to give advice and guidance to charity trustees.

Chapter 6 covers the audit and examination of the accounts of unincorporated charities and the duties of the auditors and examiners of those charities.

Chapter 7 affects charitable companies only, covering changes to the rules restricting amendments to their constitutions and the audit and examination of their accounts.

Chapter 8 provides for a new legal form for charities, the Charitable Incorporated Organisation.

Chapter 9 covers changes to the rules on the disqualification of persons from acting as trustees; the remuneration of charity trustees; the relief of trustees from personal liability for breach of trust or duty and the purchase by trustees of trustee indemnity insurance.

Chapter 10 covers changes to the rules under which small unincorporated charities may transfer their property to other charities; replace their current charitable purposes with new ones or modify their constitutional powers or procedures.

Chapter 11 covers the spending of capital endowment funds by charities and the registration of mergers between charities.  It removes the need for old charities to be ‘kept alive’ to receive legacy income.

Part 3 covers fundraising by, and the funding of, charities. Changes are proposed to the rules requiring statements to be made to donors and consumers by professional fundraisers and commercial participators. There are also new powers for the Secretary of State to give financial assistance to charities.

Recent press reports have suggested that the Charities Bill is unlikely to receive Royal Assent before summer 2006 and there is a possibility it will not do so until 2007.

Compensation Bill

The bill was introduced in the House of Lords on 2 November 2005. It is viewed by some as an attempt to address the concerns of charities engaging large numbers of volunteers and follows the failed Promotion of Volunteering Bill 2004.

Part 1: Provisions relating to the law of negligence

The provisions on negligence make it clear that, when considering a claim in negligence and deciding what is required to meet the standard of care in particular circumstances, a court is able to consider the wider social value of the activity in the context of which the injury or damage occurred.

Under the current common law, for a negligence claim to succeed there must be a duty of care owed by the defendant to the claimant, a breach of that duty by the defendant and loss or injury suffered by the claimant which is causally connected with the breach.   Section 1 concerns a particular aspect of the current law, relating to the second component: whether there is a breach of the duty of care.

The question involves two elements: how much care is required to be taken (the standard of care) and whether that care has been taken. The ordinary standard of care is ‘reasonable care’ and the question whether or not that standard has been met is a question of fact for the court to decide, having regard to all the circumstances of the case. What amounts to reasonable care in any particular case will vary according to the circumstances. In some cases, what would be required to prevent injury of the kind suffered may be such that to demand it of the defendant would be to demand more than is reasonable.

This section does not alter the standard of care or the circumstances in which a duty to take that care will be owed. It is solely concerned with the court’s assessment of what must be done to satisfy the standard of reasonable care in the case before it.

Section 1 provides that, in considering a claim of negligence, a court may, in determining whether the defendant should have taken particular steps to meet the standard of care (whether by taking precautions or otherwise), have regard to whether a requirement to take those steps might prevent an activity which is desirable from taking place (either at all, to a particular extent or in a particular way), or might discourage persons from undertaking functions in connection with the activity. This provision is designed to reflect the approach of the courts as expressed in recent judgments of the higher courts.

Part 2: Provision of regulated claims management services

The bill allows for the Secretary of State to establish a regulator to be responsible for ensuring that claims management companies abide by clear rules and a code of practice. A person providing claims management services without the requisite authorisation will be committing an offence punishable by up to two years’ imprisonment. Providers of claims management services will be required to give consumers clear advice about the validity of their claim and options for funding the costs and provide a complaints mechanism if things go wrong.

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