Part I of the Charities Act 1992 introduced a detailed statutory framework for the maintenance of accounting records by charities, requiring them to prepare and file annual accounts, reports and returns. This framework is now found in Part IV of the Charities Act 1993 and came into force on 1 March 1996.
The introduction of this accounting regime has been a drawn-out affair. First, the statutory provisions were amended by the Deregulation and Contracting Out Act 1994 and were later supplemented by The Charities (Accounts and Reports) Regulations Act 1995 and the related, revised, Statement of Recommended Practice for Accounting By Charities (SORP).
The effects of the new regime on unincorporated charities, most commonly unincorporated associations and trusts, are far reaching. In connection with their accounts, charitable companies continue to be governed by Companies Acts but in practice most will follow the format of the new Statement of Financial Activities (SOFA) introduced by the revised SORP.
One consequence of the revised registration rules, in the Charities Act 1992, was the NHS realising for the first time that it would be necessary to register – and prepare separate accounts and returns for – many of the funds held by NHS Trusts and other NHS bodies. In an attempt to lighten this load, The Charities (Amendment) Act 1995 – in force from 8 November 1993 – inserted a revised section 96 (6) into the Charities Act 1993, giving the Charity Commission the power to treat charities with two or more trustees in common as a single charitable entity, or umbrella charity.
It is to be hoped that the commission will use this power for other charity 'groups' as this would greatly reduce the administrative burden for those concerned.
The Treasury's Investment Powers of Trustees consultation document, published on 1 May, proposes using the powers in Section 1 of the Deregulation and Contracting Out Act 1994 to replace the provisions of the Trustee Investment Act 1961. If adopted, the proposals will allow trustees caught by the 1961 Act to avoid the artificial system of diversification. This requires them to split trust funds 75:25 (formerly 50:50) between “wider range” and “narrower range” investments.
In the consultation document, the Treasury has wisely resisted the temptation to include a definition of investment. Instead, trustees will have the power to invest freely, bound only by trust law constraints – the need for appropriate diversification, a duty to act prudently, a duty to take advice when necessary and a duty to review portfolio funds. However, charity trustees will still find themselves treading the narrow line between seeking a maximum return on investments and acting prudently.
Part II of the Charities Act 1992 (not included in the 1993 consolidation) and The Charitable Institutions (Fund-Raising) Regulations 1994 came in to force on 1 March 1995. Together, they form a new regime to regulate the activities of: professional fundraisers raising money from the public for “charitable institutions”; and businessmen (known as commercial participators) who, as part of a commercial promotion, indicate that a contribution will be paid to charity.
The Act defines a charitable institution as one established for charitable, philanthropic or benevolent purposes and as such extends beyond charities. But the new regime does not apply to fundraising by charitable institutions or their wholly-owned trading companies.
The cornerstones of the new regime are that professional fundraisers cannot “solicit” funds and commercial participators cannot run promotional ventures in which they say money will be paid to a charitable institution without: entering into a written agreement with the charitable institution/s concerned; and accompanying each “solicitation” or “representation” with a suitable “statement”.
The new regulations set out minimum requirements for such agreements. They also attempt to deal with the contents of the required statements. Unfortunately, the widespread use by charities of subsidiary trading companies, and the complexities of the modern commercial world have meant that compliance with the new regime has been patchy. Revisions will almost certainly be necessary to achieve the worthwhile aim of giving the public a clear idea of just who gets what from charity fundraising and promotions.
Part III of the Charities Act 1992, concerning public collections for charitable institutions has still not come into force. This is because the Home Office has decided to consult widely before making regulations which, together with Part III of the 1992 Act, will provide a single regime to control all public collections. The new law will probably come into force some time during 1998.
One particular case that caused consternation among lawyers and charities was Re Benham's Will Trusts (1995). It concerned the way inheritance tax is attributed to exempt and non-exempt beneficiaries, where they each take shares in the residue of an estate.
The case challenged the view that residue was apportioned at the outset and that non-exempt beneficiaries bore the tax attributable to their share. If confirmed, it is likely that the effects of the case will be more far reaching than was envisaged during the hearing. But many practitioners expect the case to be challenged.
New procedures were introduced for the registration of charities on 1 April, when the Charity Commission also introduced a new guide, Starting a Charity and Applying or Registration. The aim is to cut down the time commission staff spend on helping with draft documentation for potential charities by giving them most of the information they need. The commission says it will still look at draft documents if requested to do so.
The response so far from the public and practitioners seems to be positive. Recognising that there are bound to be teething problems with the new system, the Charity Commission intends to keep the new guide and their procedures under review.
Finally, an independent panel under the chairmanship of Professor Nicholas Deakin is due to report next month. The commission itself has looked at charity law and regulation so we wait with interest to see what, if any, changes will be recommended.