The Charities Act 2022 – Plain sailing for charity trustees

The Charities Act 2022 became law on 24 February and is expected to save charities in England and Wales significant time and costs which can be applied towards charitable purposes rather than administration.

The majority of the reforms are based on the recommendations of the Law Commission from 2017 and the problems it identified. The Government’s Impact Assessment for the Act estimates that charities will save at least £2.8 million per year from reduced time and legal costs, or £28 million over 10 years.

But what do the changes mean in practice? Below we highlight four key changes and what they mean for charity trustees.

• Amending governing documents – Trustees of unincorporated charities have a new wide statutory power under section 280A to amend their governing documents by resolution, in line with amendment mechanisms for incorporated charities. As with incorporated charities, certain regulated alterations (such as to the charity’s purposes) require written consent of the Charity Commission. This means that trustees of unincorporated charities can proceed with making unregulated changes to their governing documents without the time and expense of obtaining a Scheme from the Charity Commission.
• Improving land transactions –The Act clarifies and relaxes the statutory requirements that apply to buying, selling, leasing and mortgaging charity land, which the Impact Assessment notes can be disproportionate to the complexity or the value of the transaction. Trustees can obtain advice on disposals of land from a greater range of professional advisors at a lower cost and the automatic statutory requirement to advertise a proposed disposition has been removed. 
•  Making use of permanent endowment – Permanent endowment is property belonging to a charity that it cannot (usually) spend. The Act addresses concerns over the uncertain treatment and inflexible use of permanent endowment by introducing a new definition for permanent endowment and a new power to borrow from permanent endowment without having to seek an order from the Charity Commission, subject to the restrictions set out in the Act. Trustees who have adopted a total return approach to investment are provided with a new power to use permanent endowment to make investments that the trustees could not otherwise make because they are expected to produce a loss, which is expected to promote long-term investments for social good. 
• Remuneration of charity trustees – The Act provides charities with a default statutory power to pay charity trustees, or persons connected with them, for the provision of goods to the charity. This provides consistency by expanding the existing power set out in the Charities Act 2011 which enables trustees to be paid for services provided to the charity, and the same safeguards apply. These powers cannot be used to pay charity trustees for acting as trustees or as employees of the charity. 

The reforms are widely welcomed by the Charity Commission and charity sector and are expected to make a practical difference for trustees and their charities.

The next stage is for the Commission to implement the changes introduced by the Act by updating its guidance, systems and services – which it aims to do between now and autumn 2023.

For further information or advice please contact Catherine de Maid ([email protected]) or Alyssa Haggarty ([email protected]).

“… 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.” Lord Hodgson of Astley Abbots, who chaired the Law Commission’s 2012 review, on the 2017 review.

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