Charities Act 2006
This summary of the Charities Act 2006 is in addition to and amends the 1992 & 1993 Acts (it does not repeal them).
THE CHARITY COMMISSION
The Charity Commission becomes a body corporate and non-ministerial government department, outside the direction or control of government ministers. The Commission will take on the functions of the Charity Commissioners. Its objectives, functions, duties and powers are defined in the Act. The objectives will be:
Ø to increase public trust and confidence in chrities;
Ø to promote awareness and understanding of the operation of the public benefit requirement;
Ø to promote compliance by charity trustees with their legal obligations in exercising control and
management of the administration of their charities;
Ø to promote the effective use of charitable resources;
Ø to enhance the accountability of charities to donors, beneficiaries and the general public.
The Charity Commission has, in addition to its current power to demand documents and to search records, a new power to enter premises and seize documents in certain circumstances. This will require a warrant and the Commission has said it expects the power to be used only rarely.
DETERMINING CHARITY MEMBERSHIP
Where there is doubt or a dispute about who the members of a membership charity are, the Charity Commission has power to decide authoritatively - or appoint a person to determine - who the members are. The Commission can exercise this power only if the charity applies for a decision, or if the Commission has started an inquiry into the charity under s.8 of the Charities Act 1993.
WAIVER OF TRUSTEE DISQUALIFICATION
A person who has been removed as a charity trustee by the Charity Commission, High Court or Court of Session in Scotland is disqualified from serving as a trustee for any charity unless the Charity Commission waives the disqualification. The Commission has to grant any application for a waiver where the person has been disqualified inder these provisions for more than five years, unless it has good reason for not granting the waiver. However the Commission cannot grant a waiver under these provisions where the person would become a trustee of a charitable company, and he or she is an undischarged bankrupt or is disqualified from serving as a company director.
RELIEF OF TRUSTEE LIABILITY
Trustees can apply to the Charity Commission as well as the court for relief from personal liability for breach of trust or duty if they have acted honestly and reasonably. [Note that incorporation does not provide protection from personal liability for breach of trust.] The Commission is also able to grant relief to a charity's auditor, independent examiner or reporting accountant.
PURCHASE OF TRUSTEE INDEMNITY INSURANCE
Trustees can use charitable funds to purchase trustee indemnity insurance, if they believe it is in the best interests of the charity to do so - even if it is not authorised by the governing document. Charity Commission consent is required only if the governing document explicitly prohibits using the charity's funds for trustee indemnity insurance. The Act sets out what can and cannot be covered by such insurance.
OBLIGATION TO PROVIDE ANNUAL REPORT TO ANYONE WHO ASKS
Under s.47 of the Charities Act 1993, all charities - even if not registered with the Charity Commission - had to provide their annual accounts to anyone who asked, and could charge a reasonable fee for this. The trustees' statutory annual report must now also be provided.
AUDIT OR INDEPENDENT EXAMINATION OF UNINCORPORATED CHARITIES
The level of expenditure is no longer a factor in determining whether an unincorporated charity must have a full audit, nor is level of income or expenditure in the preceding two years. An audit is required if the charity's annual income is £500,000 or more (increased from the previous threshold of £250,000), or if its annual income is more than £250,000 and it has total assets valued at more than £3.26 million.
An unincorporated charity with income over £25,000 and up to £500,000 must have either an independent examination or a full audit. Level of expenditure is no longer a factor in determining whether a charity needs an independent examination. Independent examiners for charities above the £250,000 threshold but below the new £500,000 threshold must have a professional qualification or be a fellow of the Association of Charity Independent Examiners. Above this level they must have professional qualification.
ACCOUNTING THRESHOLDS FOR UNINCORPORATED CHARITIES
Expenditure will no longer be a factore in determining whether a registered charity has to submit an annual return to the Charity Commission. For financial years ending on or after 1 April 2009, unincorporated charities with annual income no more than £25,000 no longer need to send their annual accounts and report to the Charity Commission, and should not do so unless the Commission requests it. The threshold above which an unincorporated charity must prepare accrual accounts - rather than having the option to prepare a simpler receipts and payments account instead - is increased from £100,000 to £250,000.
FAILURE TO SUBMIT ANNUAL REPORTS OR RETURNS
It is an offence not to submit charity reports or returns to the Charity Commission if required, and each person who was a trustee immediately before the report or return was due can be fined. It is a defence for the trustee to be able to prove that he or she took reasonable steps to try to ensure the report or return would be submitted in time.
REGISTRATION THRESHOLDS FOR SMALL CHARITIES
The threshold at which charities have to register with the Charity Commission is increased from £1,000 to £5,000. If an organisation based in England or Wales is charitable and has annual gross income of £5,000, it must be registered with the Charity Commission unless it is expected or exempt from registering. Gross income is defined as gross income in the immediately preceding financial year, unless the Charity Commission determines otherwise in relation to a specific charity.
Under the 1993 Act, charities which occupy rateable land or have permanent endowment were required to register even if their income was under the threshold. This requirement does not apply under the 2006 Act.
Charities with income under the threshold can register voluntarily. Charities under the threshold which are already registered will remian on the register unless they ask to be removed. Even if a charity is not registered with the Commission it must comply with charity law and is under the jurisdiction of the Commission.