Charity Law: Technical Issues in Charity Law

Current project status

• Initiation: Could include discussing scope and terms of reference with lead Government Department
• Pre-consultation: Could include approaching interest groups and specialists, producing scoping and issues papers, finalising terms of project
• Consultation: Likely to include consultation events and paper, making provisional proposals for comment
• Policy development: Will include analysis of consultation responses. Could include further issues papers and consultation on draft Bill
• Reported: Usually recommendations for law reform but can be advice to government, scoping report or other recommendations

We published our report on 14 September 2017. The Government responded on 22 March 2021. The Charities Bill was introduced in the House of Lords on 26 May 2021 and on 24 February 2022, it received Royal Assent becoming the Charities Act 2022.

The Charities Act, including Explanatory Notes, are available here.

A marked-up copy of the Charities Act 2011, showing the changes that are made by the Charities Act 2022) a “Keeling Schedule”) is available here (revised version as of 24 February 2022.

The project

Charities are a force for good and millions regularly donate to help them help others.  But there were issues with the law within which charities operate, meaning that time and money was spent on administration when it could be used for charitable causes.

As a result, stemming from its 11^th Programme of Law Reform – and from Lord Hodgson’s 2012 review of the Charities Act 2006 – the Law Commission started investigating some of these technical issues in charity law.

Our 2014 Social Investment by Charities report was implemented in the Charities (Protection and Social Investment) Act 2016.

The majority of the recommendations in our 2017 Technical Issues in Charity Law report were accepted by Government and enacted in the Charities Act 2022. The provisions will be brought into force in phases and work on implementation is currently underway.

The problem

There are around 167,000 charities in England and Wales registered with the Charity Commission, the regulator, as well as thousands of unregistered charities.

Registered charities alone have a combined annual income of over £74 billion.

But our open public consultation revealed many charities struggle with a range of technical issues in the law.

These cause unnecessary expense and prevent charities dedicating their full resources to the public good.

Highlighted problems include the law concerning:

• amending governing documents
• land transactions
• permanent endowment
• mergers
• the Charity Tribunal

Our recommendations

The Technical Issues in Charity Law report made a number of recommendations to maximise the efficient use of charitable funds whilst ensuring proper safeguards for the public.

For charities, recommendations included:

• giving charities more flexibility to obtain tailored advice when they sell land, and removing unnecessary administrative burdens
• changes to the law to help charities amend their governing documents more easily with Charity Commission oversight where appropriate
• increased flexibility to use their permanent endowment, with checks in place to ensure its protection in the long term
• removing legal barriers to charities merging, when a merger is in their best interests
• giving trustees advance assurance that litigation costs in the Charity Tribunal can be paid from the charity’s funds

For the Charity Commission recommendations included:

• bringing in a single set of criteria to decide changes to a charity’s purposes
• increased powers to prevent charities using misleading names
• the ability to confirm that trustees were properly appointed

See page 355 of the report for all of the Law Commission’s recommendations.

How this will help

The reforms will not only save charities a large amount of time, but also costs. Those costs savings include an estimated £2.8m per year from increased flexibility concerning sales of land.

Alongside this the added clarity of issues with the law that are causing uncertainty will allow charities to get on with the job of helping people.

Lord Hodgson of Astley Abbotts, who chaired the 2012 review of the Charities Act, welcomed the recommendations. He said:

“In my 2012 official review of the Charities Act 2006, I found that charities faced a number of historic obstacles under the current law. These unnecessary burdens on trustees act like barnacles on a boat, causing a drag when all should be plain sailing.

“Today’s report from the Law Commission is important. Although its recommendations may appear to be highly technical, cumulatively I believe they would have a huge impact on the sector, helping trustees to work effectively in modern-day conditions.

“Since the recommendations have now been consulted on extensively and are approved of by the sector, I hope the government will find time to implement them speedily.”

Government response

On 22 March 2021, the Government responded to the report and confirmed that they accepted 36 of the 43 recommendations (one in part). The Government asked us to assist with updating the draft Bill that we published alongside the report.

View the Government’s response to the report here.

The Bill was included in the Queen’s speech (pages 121 – 122) on 11 May 2021.

On 26 May 2021, the Charities Bill was formally introduced to the House of Lords under the special Parliamentary procedure for uncontroversial Law Commission Bills.

On 23 February 2022 the Bill finished its passage through the House of Commons and received Royal Assent the next day on 24 February, becoming the Charities Act 2022.