UK Government responds to Law Commission's 'technical Issues' in charity law report

Article 25 March 2021 Experience: Charities and non-profit

The government has given its long-awaited response to Law Commission report ‘Technical Issues in Charity Law’, which was published in September 2017. It is likely that the context of the pandemic has played a significant part in drawing the government’s attention to the report.

The implementation of the recommendations will reduce some of the administrative burdens of charities and the Charity Commission at a time when resources in the sector are extremely stretched.

The response does not provide any indication of when the recommendations will be implemented, stating that it will be ‘when Parliamentary time allows’. The process of passing a Charities Bill could be dealt with using a special procedure for Law Commission bills and so time may be found sooner rather than later.

Although the government has not agreed to all the recommendations, the changes will still be the most significant to charity law since the Charities Act 2006.

We consider the following to be the key changes for charities to be aware of:

  • The power currently allowing trustees to be paid for providing services to a charity will be extended to also cover the supply of goods. This power will supplement any existing power already contained in a charity’s governing document.
  • Charities will be able to make relatively small ex-gratia payments without requiring the permission of the Charity Commission. Ex-gratia payments are those which charity trustees feel morally obliged to make but have no legal power enabling them to do so. Currently the Commission needs to approve these payments. Thresholds will be introduced with reference to a charity’s income, under which a charity may authorise the payments without obtaining prior permission.
  • The definition of permanent endowment will be reformulated to remove inconsistencies and lack of clarity.
  • Where charities have merged and the merger is registered, the charity will be deemed to exist for the purposes of establishing whether a gift has been made to it. This will remove the need to keep shell companies to receive gifts and legacies.
  • Trust corporation status will be automatically conferred on corporate charities in respect of any charitable trust of which the charity is, or becomes, a trustee, removing the need for charities to apply for the status.
  • When a charity appeal raises too little money, the charity will not have to take steps to contact individual donors if the amount of the donations is below a threshold of £120. The administrative burden of contacting donors following a failed appeal is often disproportionate to the size of the donation and the government considers this threshold will strike a fair balance with the donor’s wishes.
  • A new power will be introduced allowing charities created by Royal Charter to amend any provision in their Royal Charter for which there is currently no express power of amendment. Such amendments will be subject to approval by the Privy Council. This will save the time and expense that would be incurred if charities instead have to follow the procedure of adopting a Supplemental Charter.
  • The categories of professionals who can provide a charity with advice regarding the disposal of land is to be expanded and the content of expert reports on land transactions will be revised. The requirement to obtain an expert’s report will now not apply when a charity is only one of several beneficiaries for which the land is held in trust.

The government has not agreed to all of the anticipated changes however. For example, the Law Commission recommended that wholly owned subsidiaries be excluded from the definition of a ‘connected person’ for the purposes of disposing of charity land. The government did not accept this on the basis that charities often fail to deal with subsidiaries at an arms’ length and so the safeguard of Commission permission should be kept in place. The government also did not agree to review the basis on which decisions of the Charity Commission can be challenged and who has the particular rights of challenge.

The changes are significant and it is hoped they will make the operations of charities easier in many cases. We will be providing further updates on this topic when a timeline for the changes becomes clearer.

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