Charities monthly round-up - January 2025

What does 2025 hold in store for charities?

As we step into 2025, several significant changes are on the horizon which could impact the charity sector:

Tax compliance measures

The Government is set to introduce new legislation aimed at tightening charity tax compliance. Following a consultation in 2023, the reforms are expected to update regulations on charitable donations and introduce stricter criteria for assessing charitable spending. Draft legislation is anticipated for consultation in 2025, with implementation planned for later in the year. These changes underscore the Government’s focus on preventing the misuse of charity tax benefits, but they may also place additional administrative burdens on charities.

Changes affecting independent schools

The autumn Budget 2024 announced measures that will significantly impact independent schools with charitable status:

• VAT on school fees: since 1 January 2025, independent schools are no longer exempt from VAT, meaning fees are now subject to this tax.
• Removal of business rates relief: from April 2025, charitable independent schools will lose their exemption from business rates.

These changes could create financial challenges for many independent schools. Some schools may consider reassessing their charitable status, but relinquishing it would expose them to corporation tax on profits, potentially exacerbating financial pressures rather than alleviating them. As a result, it is expected many schools are likely to increase fees to cover the shortfall.

Is this a worrying precedent for the wider sector? The removal of tax benefits for independent schools raises concerns for the broader charity sector. Could this signal a willingness by the Government to re-evaluate traditional tax benefits for other types of charities? The door may be opening for similar measures across the sector, potentially eroding longstanding tax advantages for all charities.

These developments will need close attention in the months ahead. We’ll continue to monitor the situation and keep you informed as more details emerge.

The Charities Act 2022

The final major provisions of the Charities Act 2022 were scheduled to take effect on 19 May 2025, including those relating to ex gratia payments. However, the Government has confirmed further delays to the implementation of sections 15 and 16 of the Act, which will permit trustees to make small ex gratia payments – up to £20,000, depending on the charity’s income – without requiring the Charity Commission’s (the Commission’s) consent. This change aims to reduce costs and streamline processes, especially in cases where the expense of obtaining approval exceeds the payment itself. The new implementation date, however, remains unclear.

CC7 currently outlines the Commission’s guidance on ex-gratia payments. For more information, please contact our charities team.

Have you completed your annual account filing?

The Charities (Annual Return) Regulations 2024 apply to all registered charities whose accounting year ends on or after 1 January 2025.

Key updates include the removal of questions in the locations and structure sections of the return form. This change follows feedback from the Annual Return Public Consultation analysis, aiming to streamline the process for charities.

Importantly, all questions in Part A of the return remain unchanged from 2023. Charities should ensure they are prepared to complete these as part of their 2025 Annual Return filing.

The guidance can be found here. Should you require additional assistance, contact Edwina Turner or Sarah Tomlinson.

Reform consultation: Co-operatives and community benefit societies

If you’ve been following sector news, you’ll be aware of the Law Commission’s recent consultation on reforms to co-operatives and community benefit societies (CBSs). The key question is whether these organisations should continue as exempt charities or be required to register with the Commission.

At AC, we submitted our feedback to the Law Commission following a consultation event we hosted in Birmingham. Broadly, we aligned with the CLA Working Group’s position: opposing mandatory Commission registration for CBSs that are housing associations but supporting registration for other charitable CBSs.

While the drive for greater transparency and regulation has received some support, concerns remain about the additional burden on regulators and the potential implications for housing associations. Of the approximately 1,500 charitable CBSs governed by the Co-operative and Community Benefit Societies Act 2014, nearly 700 are already overseen by the Regulator of Social Housing (RSH). Shifting all oversight to the Commission could strain resources and lead to inefficiencies. A multi-regulator system might be a more effective approach, with the RSH managing charitable CBSs that are housing associations, while the Commission monitors others.

In November, Victoria Jardine, Catherine Simpson and Peter Hubbard explored these issues in a webinar, particularly focusing on housing associations. For a detailed look at the topic, read our blog post or explore David Alcock’s analysis from a social business perspective.

Employment update

Our employment team have recently published several insightful blog posts that may be of interest to readers, particularly regarding the implications of the Employment Rights Bill for local authority employers. In this post, Matthew Gregson and Sarah Harnett delve into the challenges posed by the Bill, highlighting its impact on managing large workforces while balancing public interest and regulatory compliance.

Additionally, Anna Dabek explores the use and effectiveness of probationary periods in her blog post, giving information on ensuring your probationary policies are compliant with legal requirements.

Finally, the team has compiled their top insights for 2024 into one comprehensive and highly practical post. This resource covers key topics including the Employment Rights Bill, the Preventative Duty and updates on the National Minimum Wage. It’s a must-read for those navigating employment law in the coming year.

For more information, please contact Esther Campsall, our editor this month. Esther is a senior associate specialising in charity and education governance. With over 13 years’ experience of advising charities of all shapes and sizes, she advises on restructuring, merging, collaboration, contracts, trust law and property law in a charity context. She also advises schools and multi-academy trusts on governance matters, including academy conversions and mergers.

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