With a new King on the throne (and plenty of bank holidays to boot), there are changes in the charities’ world too – welcome to the May charities newsletter.
In this month’s edition, the Government is considering the administration of Gift Aid and has opened a consultation on the regulation of charitable tax reliefs. The latter may impact donations left in wills, and there have been recent reminders of the risks of legacy donations and the importance of due diligence on such donations. Sticking with due diligence, the Charity Commission has also announced new guidance on internal financial controls, along with new investment guidance. Charities would be well-advised to consider new hires carefully, with several reminders about potential liability for staff members’ wrongdoing.
In other news, there is deregulation on the horizon for the disposal of charity land. There are also several updates which will be of particular interest to faith-based charities, including a government review into its relationship with faith groups, a reminder about copyright laws and a Charity Commission inquiry into a divided board. Indeed, several recent Charity Commission inquiries provide a regular reminder of the importance of trustee duties.
Tax news – changing the administration of Gift Aid and a consultation on tax reliefs
The Government have announced two tax policies of interest to charities:
- a commitment to engage with charities on modernising the administration of Gift Aid, using technology; and
- a consultation with charities focused on increasing the regulation and/or scrutiny of tax reliefs for charities and charitable donations. The consultation is now open and closes on 20 July 2023. Charities should consider responding to the consultation and monitor the consultation’s progress.
For information about these policies, please see the reports by Churches’ Legislation Advisory Service (CLAS), Third Sector and the Charity Tax Group.
The risk of legacy donations
The Refugee Council has received a lot of press about its decision, following a due diligence procedure, to accept an £8,800,000 donation connected to the controversial ex-King of Spain (see reports in Third Sector and i news). The donation came from an allegedly questionable offshore trust, namely, through a gift in the will of a deceased friend of the King but where the precise origin of the funds was not entirely clear. However, the Refugee Council said that accepting the donation was in the charity beneficiaries’ best interests. The incident highlights the various considerations to balance when deciding whether to accept donations from allegedly suspect sources including, on the one hand, the size of the donation involved and, on the other hand, the trustworthiness of the source (in light of money laundering and other regulations) and reputational risks. Regular readers will remember our comments in our December round-up about the Charity Commission’s guidance when it comes to accepting (large) donations. It also demonstrates the risk of legacy donations in terms of finding the source of funds.
Aside from reputational and legal risks, there are also practical problems with donations in wills. Charities are becoming increasingly reliant on legacy donations, as it is reported that more and more wills are including charitable gifts. However, as Third Sector reports, there are currently significant delays in the probate system despite increased recruitment. In this context, changes to the probate system have been announced, including increasing probate fees and moving probate applications online. If you have any queries or concerns about donations, please feel free to contact Natalie Barbosa or another member of our charities team.
New guidance on internal financial controls and cyber security
As reported in Edwina Turner and Nikhil Handa’s recent blog post, the Charity Commission has published updated guidance on internal financial controls for charities. The updates are particularly focused on addressing cyber risks, in light of the Government’s cyber security breaches survey 2023 (on which, see Emma Watt and Steven Brunning’s recent blog post).
The Charity Commission recommends that charities review their internal financial controls at least annually and on any significant (potential) change in their operations, structure or finances. The guidance and checklist are a helpful starting point for such a review.
Further advice about the updated guidance and its provisions on cryptoassets, accepting and providing hospitality, and organising public collections and fundraisers can be found in Natalie Barbosa’s recent ebriefing.
Sticking with cyber awareness, Third Sector and the National Cyber Security Centre have released guidance for charities on defending against cyberattacks. The guidance includes practical tips such as using multi-factor authentication, limiting the retention of data and ensuring that your charity has an incident response plan. It also contains information about the Government’s ‘Cyber Essentials’ certification for charities. If you are concerned about your charity’s internal financial controls or your liability for cyber security breaches, feel free to contact our charities team for further advice.
New investment guidance being trialled
CLAS and Practical Law have reported on the Charity Commission’s new investment guidance, which is being tested on 1,000 chosen charities. CLAS reports that the new guidance is intended to address the confusion brought about by the High Court’s decision in Butler-Sloss v Charity Commission, about whether charities can exclude investment opportunities which conflict with the charity’s objectives. (For further information about the Bulter-Sloss case, please see our December round-up.)
Charities should keep an eye on the progress of the new guidance, with Practical Law reporting that the final guidance is due in summer 2023. If you are concerned about your charity’s investments, please contact Edwina Turner or another member of our charities team.
Employment update and the risk of liability for your staff members’ wrongdoing
There have been several reminders recently for charities that they can be liable for their employees’ wrongdoing.
CLAS has reported on the Supreme Court’s recent decision on vicarious liability in trustees of the Barry Congregation of Jehovah’s Witnesses v BXB. As they explain, ‘vicarious liability’ is a way for employers to be held liable in civil (rather than criminal) law for their staff members’ wrongdoing, where the staff member is sufficiently closely connected to the charity and the wrongdoing is sufficiently closely connected to their role. As CLAS reports, in the Barry Congregation case, the trustees of a church were ultimately not found liable for a rape committed by a church elder. However, this was a highly fact-specific decision and charities should be wary of any wrongdoing by their staff.
Charities also need to be aware of the risk of bullying in the workplace, as made clear in Michael Brownlee and Sacha Hibbitt’s recent blog post. Bearing in mind that employers have a duty of care to maintain their employees’ safety and dignity at work, they recommend good practice to prevent and respond to bullying.
Charities also need to be cautious of financial wrongdoing by their employees or agents, in light of the Government’s proposed offence of failing to prevent fraud, which you can read more about in Edwina Turner’s recent blog post.
Sticking with employment, CLAS has also reported on the Government’s new guidance for employers on ethnicity pay gap reporting. If you would like further advice about your employment law position, please feel free to contact our employment team.
Proposed new rules for disposing of charity land
The planned Charities (Dispositions of Land: Designated Advisers and Reports) Regulations 2023 will make it easier to dispose of charity land. Charities will be familiar with the current Charities Act 2011 requirements to obtain a qualified surveyor’s report before selling, long-term leasing or otherwise disposing of land and to advertise those dispositions as advised in the surveyor’s report.
The regulations will extend the group of people who can provide a valid report from fellows or professional associates of the Royal Institution of Chartered Surveyors, to also include fellows of the Central Association of Agricultural Valuers and members of NAEA Propertymark at fellow grade. They will also simplify the list of matters to be dealt with in the report compared to the old list. The regulations will also be brought in alongside section 19 of the Charities Act 2022, which will get rid of the current advertising requirement.
The regulations and section 19 are not yet in force but if you have any questions about disposing of charity land, feel free to contact our charities team, or our property specialists in the charities, health and social care and housing sectors.
Updates of particular interest for faith groups
CLAS has drawn attention to the Bloom Review – a report recently commissioned by the Government on its relationship with faith groups – and its recommendations. They highlight the report’s recommendations that every local council should enter into a faith partnership charter with local places of worship by December 2023 and that those providing faith-based education should be appropriately regulated.
CLAS also reminds faith groups (and all charities) of the importance of having proper licences to perform copyrighted works, referring to the Guardian’s report on Help Musicians’ recent liability of £1,000 for playing copyrighted works at a charity concert. They remind faith groups that, while a licence is not required for music used in an act of divine worship, it is required for any other use of copyrighted music.
Meanwhile, Practical Law reports on the Charity Commission’s recent inquiry into Ethiopian Orthodox Tewahado Church St Mary Tsion, explaining that the Commission and the High Court required all of the charity’s assets to be transferred to a charitable incorporated organisation set up for the purpose and run by interim managers after two rival boards of trustees had established themselves in the community causing division and disputes about board was legitimate. Practical Law highlights that this is of particular interest for faith groups, where deep-seated disagreements within groups can play out within the charity.
For advice, please feel free to contact our charities team who have significant experience in advising faith-based charities.
Charity Commission inquiries
Practical Law reports on the Charity Commission’s recent inquiry into Newham Community Leisure Trust finding several examples of significant mismanagement leading to significant indebtedness and ultimately closure of the charity, including conflicts of interest, continued decision-making by a disqualified trustee, a failure to register a re-incorporated charity with the Charity Commission and a failure to meet the minimum number of trustees set out in the charity’s governing document. The decision shows the potential consequences of not complying with trustees’ duties under charity law and as set out in the governing document.
It also reports on the Commission’s inquiry into Hospice Aid UK, finding that the charity entered into a very costly agreement with a fundraising agent contrary to the Commission’s advice in a previous inquiry into the charity. It reports that the Fundraising Regulator has also stepped in. This emphasises that spending cannot be justified purely because it achieves a charitable aim, particularly if the spending is grossly disproportionate to the outcome.
It also reports on the Charity Commission’s inquiries into The Macbeth Memorial Trust and Rhema Church London, which we covered in our April round-up.
However, Practical Law notes that the Charity Commission’s inquiry into Hospice Aid UK is subject to challenge by the charity. It also reports on the First Tier Tribunal decision in Trustees of Mountain of Fire and Miracles Ministries International v Charity Commission for England and Wales, which considered when the First Tier Tribunal can hear a challenge to a Charity Commission decision and overturned a Commission decision to appoint interim managers for the charity that were not working with the trustees.
If you would like further advice about trustees’ duties, please feel free to contact our charities team.
Don’t forget – Charity Commission regulatory alerts
Charity trustees should remember to keep an eye on regulatory alerts issued by the Charity Commission. These are warnings occasionally issued by the Commission about particular risks that could affect charities and include Charity Commission decisions and news stories. You can review previous alerts as well as watching out for new updates on developing risks.
For more information
For more information or advice on the topics raised in this month’s newsletter, please contact Natalie Barbosa. Natalie is a senior associate in the projects department specialising in commercial work for charities, including fundraising contracts, fundraising law and regulation, grants, partnerships between charities and for-profit organisations, environmental and biodiversity matters, and children’s services.
