With schools out (or soon to be) and the sound of ice cream vans in the air, feel free to grab a cuppa, kick back in the sunshine (ever the optimist!) and peruse our latest charity newsletter.
In this edition, there are plenty of updates concerning the Charity Commission (the Commission):
- using its powers to take action against charities and trustees not fulfilling their duties including governance failures and financial hygiene obligations, serving as a useful reminder of the scope of the Commission’s powers (including issuing official warnings);
- a challenge faced by the Commission against its decision to register a charity which has also offered some useful guidance about how to define the ‘public benefit’ and the importance of charities being civilised in public debate; and
- the Commission has published its business plan for 2023-24 stating that this is a ‘transition plan’ to bridge the gap between its 2018-23 strategy, with a new strategy said to be published in 2024. The business plan sets out several action points for the Commission to improve its regulation of charities and fulfil its role for the public as well as charity trustees, including steps to account for the new provisions of the Charities Act 2022, the new ‘my Charity Commission account’ and the new annual return 2023.
HMRC has published its first-ever charities newsletter reporting on tax updates for the sector and is intended to help charities remain registered as such with HMRC. The newsletter includes reports on plans related to gift aid, restricting tax reliefs and addressing tax compliance (in case you missed it, see our May newsletter for further information also).
In our employment updates, we have news about whistleblowing, the Equality Act 2010 and paying suspended sick employees.
And, in other news, there are potential changes in the future for the regulation of co-operatives, community benefit societies and friendly societies. As well as our usual round-up of funding opportunities that we’ve spotted – so lots of information for you to digest.
Charity Commission regulatory actions
Several recent actions by the Commission have highlighted the importance of good governance and financial hygiene. One example being the official warning issued to The UK German Shepherd Rescue Angels about failures of basic trustee duties through repeated late filing of its annual accounts, as well as its failure to maintain the correct number of trustees in line with its governing documents.
Official warnings are used by the Commission to inform charities/trustees of the steps to take to rectify any wrongdoing and, by publishing official warnings, to warn the public and potential donors about the charity. The Commission usually sends a notice to the trustees before issuing an official warning allowing the trustees to argue their case to the Commission but be warned, they can be issued without opening an inquiry. For further information about official warnings, see the Charity Commission’s guidance or its more detailed operational guidance.
The case also serves as a useful reminder of the importance of proper accounting. The rules on filing charity accounts can be confusing. The documents that have to be filed depend on the size and structure of the charity. There are broadly three types of documents to prepare:
- firstly, all charities must prepare regular accounts that are available for inspection on demand by the Commission;
- secondly, charities that are registered with the Commission must also prepare a charity trustees annual report; and
- thirdly, all charities must submit an annual return to the Commission (which has recently been updated), but the contents of that return vary depending on the charity’s income and whether it is a Charitable Incorporated Organisation (CIO).
Trustees would be well-advised to read the links above and the Commission’s guidance on reporting and accounting and its general guidance on accountability. Trustees can also look at the Commission’s statement of recommended practice for preparing charity accounts.
The importance of proper accounting was also highlighted by the recently published conclusions of the Commission’s long-running inquiry into failures to submit accounts across the sector, first opened in 2013. From April 2022 to March 2023, the Commission looked into over 50 charities to investigate their failure to submit proper accounts.
Third Sector have also reported on recent commission activity to crack down on poor financial controls and the recently-updated guidance on internal financial controls (which regular readers may recall from our May and June Newsletters).
Such failures were highlighted in the Commission’s recent investigation into The Cowesby Trust, which found that the sole remaining trustee was responsible for serious misconduct and/or mismanagement in the administration of the charity. Not only was he liable to repay sums used for his personal benefit but the Commission subsequently disqualified him from acting as a trustee of any charity and from holding an office or employment with senior management functions in charities generally for ten years (from 31 August 2018).
The Commission has also published its decision following its inquiry into Resham Helping Hand. This was the final step in a long-running engagement between the Commission and the charity, including issuing an action plan, a monitoring inspection, the appointment of an interim manager and the restriction of the charity’s bank account. The Commission was particularly concerned that very little of the charity funds had been spent on charitable purposes. The Commission again found misconduct and/or mismanagement in the administration of the charity by the trustees and decided to wind up the charity and transfer its funds to an independent charity with similar objects. Be warned – they have powers and will use them!
Commission challenged in the tribunal
The charity tribunal has issued its judgment in Mermaids v Charity Commission and LGB Alliance. The case concerned an appeal by one registered charity (Mermaids) against the Commission’s decision to register another charity (LGB Alliance). The judgment concerned two issues: (1) whether Mermaids could bring the appeal and (2) if so, whether the LGB Alliance is a charity, under the Charities Act 2011.
The tribunal members disagreed about whether the LGB Alliance is a charity (the second point), but this was not relevant because the Tribunal did find that Mermaids could not bring the appeal in any event (the first point).
While the judgment is silent on the second point, it is helpful (as picked up in the Commission’s comments on the judgment) in emphasising that the Commission’s interpretation of ‘public benefit’ is an overall neutral one and that just because two groups disagree about what is in the public benefit does not mean that both cannot be registered as charities in the public benefit.
The Commission’s comments note the importance of civilised behaviour by charities when they enter into public debates (on which see further our April newsletter) and the judgment also highlights the importance of distinguishing the actions of a new charity, from those of its predecessors and supporters.
For further advice about the public benefit requirement please feel free to contact our charities team. For advice on the legal considerations for charities entering into public debates, you can speak to our charities team or Natalie Barbosa.
Employment updates
Charities should take heed of the mistakes made by Royal Mail in its treatment of a whistleblower. As set out in Libby Hubbard and Michael Brownlee’s recent blog post, the case serves as a warning about the importance of taking employee grievances and whistleblowing seriously, ensuring such are independently investigated to avoid whistleblowers being bullied or victimised.
Meanwhile, a judgment from the employment tribunal has addressed the protection of ethical veganism under the Equality Act 2010. As explained by Libby Hubbard and Sacha Hibbitt in a recent blog post, the case emphasises that a belief must be genuinely held to be protected under the Act and demonstrates the importance of showing that the issue complained about (in this case, dismissal for refusing a vaccine) is related to the protected characteristic.
Another tribunal decision of interest was Ms Simmonds v Croydon London Borough Council. As explained in Matthew Gregson and Sarah Harnett’s recent ebriefing, the decision found that an employee that was both sick and suspended should be paid full pay under the disciplinary policy, rather than sick pay. As Matthew and Sarah explain, the case highlights that employees should not be left unnecessarily on suspension, employers should have clear contractual provisions dealing with all eventualities (including an employee becoming sick while suspended) and that tribunals tend to take an unfavourable view of reductions in pay which are not based on an express contractual term. They also warn that provisions dealing with sick pay should be compliant with laws against disability discrimination.
Potential law review for co-operatives, community benefit societies and friendly societies
Finally, the Law Commission has been invited to review the law governing co-operatives and community benefit societies (the Co-operative and Community Benefit Societies Act 2014) and the Friendly Societies Act 1992, governing (you guessed it) friendly societies. If it does proceed with the review, the Law Commission will open a consultation on the current law.
Interested in keeping informed? You can email coops@lawcommission.gov.uk and friendlies@lawcommission.gov.uk to be added to a mailing list for updates on the review or for further information please see David Alcock’s recent blog post, which also touches on the Co-operatives, Mutuals and Friendly Societies Act 2023 currently making its way through Parliament.
If you have any questions about co-operatives, community benefit societies and friendly societies generally, please feel free to contact our charities or social business teams.
Funding opportunities
Morris Crocker Chartered Accountants have put together a useful list of current funding opportunities, namely:
- the National Lottery Community Fund;
- Groundwork and Bupa Foundation’s new Green Community Grants for projects ‘which help with both people and planet health’;
- the Arts Council England’s capital investment programme for cultural organisations in England (open for applications from 25 July to 3 October); and
- Scottish and Southern Electricity Networks’ resilient communities fund for Central Southern England, focused on projects which prepare for emergency events and protect vulnerable persons.
Third Sector also reports that bids can be submitted from 24 July to 21 August for HMRC’s £5,500,000 grant fund, available to charities that assist people, particularly those who are vulnerable, with tax information.
For more information
For more information or advice on the topics raised in this month’s newsletter, please contact Sarah Patrice. Sarah is a partner in the governance, funding and corporate team and advises on a range of concerns for community-based organisations including charities, housing associations and housing co-operatives. She specialises in providing governance, regulatory, contractual, charity, board and company secretarial support and has extensive experience advising on constitutional matters, board disputes, group structures and joint ventures.
