A commencement order under the Charities Act 2022 made on 12 June 2023 has brought a second tranche of changes to charity law with effect from 14 June 2023. We have published a separate article on the changes relating to land disposals, which you can read here.
In the article below, we look at other important changes that came into force in June as part of this tranche, in particular the new rules on permanent endowment and charity names.
Increased flexibility for charity trustees to use permanent endowment
Property is permanent endowment if it is subject to a restriction on expenditure which distinguishes between income and capital. The Charities Act 2011 contains powers to release restrictions on spending the capital element of permanent endowment.
The Charities Act 2022 extends these statutory powers extend. Under the new regime:
- Charities can spend part or all of a permanent endowment fund of £25,000 or less without Commission authority, in some circumstances. Availability of the power no longer affected by the gross income of the fund;
- Certain charities can borrow up to 25% of the value of their permanent endowment fund without Commission authority, provided the borrowing is expedient and is repaid within 20 years; and
- Charities that have resolved to invest on a total return basis can decide to make social investments with a negative or uncertain financial return, provided any losses are offset by gains. Trustees must follow the rules set out in regulations (a link to which can be found here) to adopt a power to make social investments of this type.
Some of the statutory procedures and rules which must be followed when exercising these powers have been updated by the Charities Act 2022 and trustees must take care to follow these, as well as their general trustee duties to act with care and in the charity’s best interests, when making decisions. Charities that cannot use the statutory powers will require Charity Commission authority.
The Charity Commission has updated its guidance on rules for charities with permanent endowment (which can be found here) and on total return investment for permanently endowed charities (which can be found here).
Increased powers for Charity Commission to prevent charities using misleading names
The Act extends the Commission’s existing powers to direct a charity to change its name and confers new powers to prevent charities using unsuitable names.
A charity’s formal name, which will usually be set out in its governing document, is distinguished in the Act from a “working name”: this is a name under which a charity carries out its activities, though does not include a name used for specific projects, events or campaigns.
The explanatory notes to the Act give the example of the charity with the registered name Charity Projects, which uses the name Comic Relief to run an event known as Sports Relief: “Charity Projects” is the formal name and “Comic Relief” is a working name but “Sports Relief” is not.
The new powers enable the Commission to:
- Use its powers to direct a change of a charity’s formal name, whether or not it is registered and even if the direction is given more than twelve months after registration of the name;
- Direct a charity to stop using a working name if it is too similar to another charity’s name or is offensive or misleading;
- Delay registration of a charity with an unsuitable name or, after a name change, delay entry of a new unsuitable name onto the Register of Charities; and
- Use its powers in relation to exempt charities in consultation with the principal regulator.
The Commission has updated its guidance on charity names following the changes. Its guidance on how best to choose a charity’s name can be found here.
- Charities which were previously unable to take advantage of the power to spend permanent endowment because of the previous market value or income thresholds should consider whether the new powers are available to them and, if so, should take this into account in their financial reviews.
- Charities with working names should ensure that they notify the Charity Commission of all their working names. Although this is not a legal requirement, it may help prevent other charities from using names too similar to your own established working names.
- Charities considering changing their formal name or using a new working name should search the register of charities as well as the internet and should make other reasonable inquiries to check for similarity with the names of other charities and organisations.
We will consider issues for charities with permanent endowment in a future article. Meanwhile we will update this blog as and when further provisions of the Charities Act 2022 come into force and provide links to the new and updated guidance provided by the Commission whenever possible.
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