Exempt charities and the Charities Act 2022

The Charities Act 2022 has brought in changes that affect the way in which charities are regulated and governed and amends the Charities Act 2011.

These changes don’t just apply to registered charities, but also to charities that are exempt from the obligation to register with the Charity Commission.

Samantha Pritchard, charities partner, and Ryan Douglas, education and charities paralegal, explain what you need to know.

What is an exempt charity?

Academy trusts, further education corporations, sixth-form college corporations and many universities are exempt charities, alongside a number of other institutions set out in schedule 3 to the Charities Act 2011.

This means that they do not appear on the Charity Commission’s register of charities.

Whilst The Department for Education is the principal regulator for academy trusts, further education corporations and sixth-form college corporations, The Office for Students is the principal regulator for higher education colleges and universities.

The principal regulator has primary responsibility for promoting legal compliance by exempt charities under its regulatory control. This means that, whilst the Charity Commission still exercises some regulatory oversight, it does so alongside a principal regulator under a memorandum of understanding.  

Exempt charities are therefore still bound by charity law (unless expressly excluded) and if you are a member of the governing body or board of an exempt charity, you are a charity trustee, even if you go by another name like director, or governor.   

This article highlights the key changes introduced by the Charities Act 2022 that you need to be aware of. The changes are coming in periodically, with the final tranche of changes due to be in place later this year.

Changes that came into force on 31 October 2022

• Charities now have a new statutory power to pay trustees for:
  • Services only;
  • Services and any goods required to facilitate those services;
  • Goods only.

While these changes provide a more relaxed approach to paying trustees for goods or services, the general principle that a trustee role is a voluntary, unpaid role remains the same and organisations still need to follow the rules set out in their governing documents.

• The requirements charities have to follow where fundraising appeals do not raise enough, or raise too much, funds have now been simplified. You can find the Charity Commission’s guidance on fundraising appeals here.

Changes that came into force on 14 June 2023

• Charities now have more flexibility to spend and borrow from permanent endowment. Property is permanent endowment if it is subject to a restriction on being expended which distinguishes between income and capital. For example, some older academy trusts were established with a permanent endowment from their original sponsor.
  
  Charities can now use statutory powers to spend from an endowment fund of less than £25,000 without Commission consent, in certain circumstances.
  
  Charities can now also borrow up to 25% of an endowment fund without Commission consent.

• The Charity Commission has new powers to make directions for a charity to stop using or to change a working name. A working name is an alternative or trading name used by a charity which is different to its legal or registered name. The Commission can use these new powers in consultation with principal regulators in relation to exempt charities.

Changes that came into force on 7 March 2024

• Changes were made to the statutory regime that applies when a charity mortgages or disposes of an interest in land but these rules do not apply to exempt charities.
  
  Having said this, trustees of exempt charities still need to comply with their general duties when disposing or mortgaging charity land, and a statement must still be included in relevant documentation to confirm the charity’s exempt status, as required by s122 Charities Act 2011.  
  
  
• The test the Charity Commission will use to decide whether it will consent to an alteration to a charity’s charitable purposes has changed. For example, charitable companies like academy trusts must now explain what the original purposes were, how desirable it is to keep the purposes similar to the current purposes, and the need for suitable and effective purposes in light of current social and economic circumstances.
  
  The Charity Commission will exercise this consent process in consultation with an exempt charity’s principal regulator.  If changes are made to an exempt charity’s objects without the Commission’s consent, they will be invalid.

For advice regarding your obligations and duties as exempt charities, please contact [email protected] or [email protected] with any questions you may have.