The Charities Act 2022 – what this means for museum trustees

Context

The Charities Act received Royal Assent in February 2022 and applies only to England and Wales. It implements recommendations from Law Commission report (2017) and Lord Hodgson’s review of the 2006 Charities Act (2012).

This briefing from governance experts Hilary Barnard and Ruth Lesirge highlights the key changes relevant to museums who are registered charities.  The changes will be made over 18 months – as set out in the final section.

The full text of the Charities Act 2022 can be accessed at https://www.legislation.gov.uk/ukpga/2022/6/contents/enacted

Governing Documents and Trustees

1. Some changes may make it more difficult for museums to change their charitable Objects. Note that. when considering changes, the Charity Commission must take into account the original purposes of the charity and the similarity of the intended and new purposes in relation to current social and economic circumstances.
2. The powers of small unincorporated charities to transfer property or amend their purposes has been removed. Instead, all unincorporated charities (regardless of size) will be able to to amend any provision within their trusts (unless consent of the Charity Commission is required).
3. Any changes to a governing document must be passed by at least 75% of the charity’s trustees, if they are the only members. Where there is a separate membership, a majority of the trustees and at least 75 % of the members voting at a general meeting is required.
4. Where a trustee appointment process is not clear or has not been properly made, the Charity Commission has greater powers to ratify the appointment.

5. There is more flexibility, allowing trustees to be paid by the charity for goods, services, or both.

What this means for you

• Do you want to press ahead with any amendments to the charitable Objects before the new rules apply? If not practical, review new guidance from the Charity Commission on this issue.
• Do you need to pay any trustees for the supply of goods. If not urgent, it may be best to wait for the new rules?
• If making administrative changes to your governing document – for example, amending trustee powers or the processes around the appointment of trustees – it’s probably better to do so now: it is unlikely that there will be any benefit when new rules apply.

Fundraising

1. If a fundraising appeal fails, museums will be able to spend small donations on projects.
2. There is a change where the museum cannot fulfil the donor’s wishes or a charitable trust’s purposes. Under certain circumstances, (over-reaching or failing to reach a fund-raising target, including where returning the donation will be unduly expensive) Trustees can decide to re-assign the funds raised to projects ‘as close as possible’ to the museum’s original purposes.

What this means for you

• Prepare your fundraising literature carefully, making clear how over- or under-achievement of the appeal will be managed
• Review Code of Fundraising Practice guidance on appeals.

Ex gratia payments

1. The Act changes the rules for ex-gratia payments. (An ex-gratia payment is a payment which the museum does not have a legal obligation to make and which cannot be justified as being in the interests of the museum, but the museum’s trustees feel under a moral obligation to make it). It allows museums to make small ex-gratia payments without Commission permission, although there is a cap on allowable payments. There is a sliding scale for allowable payments, depending on the museum’s gross income in the last financial year.

2. The test for making an ex-gratia payment is defined as ‘when charity trustees could reasonably be regarded as being under a moral obligation to make it’.

What this means for you

• Study the new rules before making any ex-gratia payments.

Disposal of property, restricted legacies and mergers

1. The Act is clearer about legacies that include some property.
2. Gifts to a Museum that has merged can be seen as gifted to the new charity, even where specified to be solely for the ‘unmerged’ museum charity.

What this means for you

• Review and consider whether to retain any subsidiary shell charities
• Consider registering any mergers, including historic mergers, on the Register of Charities.

Professional advice on the sale of land

1. Museum trustees will be able to obtain advice from a wider category of “designated advisors”, including qualified museum trustees and officers.

What this means for you

• Asses whether the new rules will be more or less favourable regarding any disposal of land the museum intends. If less favourable, consider acting before the new rules come in. 

Permanent endowment

1. Museums will have greater freedom to borrow from a permanent endowment, and decide within limits how capital funds can be spent or invested. The Act introduces the ability to borrow from a permanent endowment and raises the maximum amount that can be spent. Permanent endowment refers to funds of a charity where there is a restriction as to how the capital may be expended.

What this means for you

• If your museum is fortunate enough to have a permanent endowment, review the new rules to see whether the new flexibility will assist you.

Charity names

The Charity Commission will have greater ability to object to a charity’s formal legal and working name.  This will now apply to all charities whether or not registered with the Commission. The Commission can also delay registration where it thinks that the name is unsuitable.

How the 2022 Act will be implemented

DCMS has given an indicative timetable for implementation of the different Sections of the 2022 Act. These include:

Autumn 2022

• ‘Cy-près’ powers – These changes will give greater freedom for museums to decide what to do when a fundraising appeal fails to raise sufficient funds for the original purpose or when the money donated exceeds the amount needed. (allows the wishes of a donor to be carried out even if the original purpose of the gift can’t be fulfilled. For this to apply, the new purpose should be as close as possible to the original one).

• Ex-gratia payments – with this change, museums will be able to make small ex-gratia payments without Charity Commission consent.

• Paying trustees for goods – museums will be able to enter into contracts with trustees for the supply of goods (and services), even where not specifically authorised in the museum’s governing document.

Spring 2023

• Permanent endowments – the rules relating to permanent endowments will become more flexible.

• Museum land – the law on disposal of charity land and who can be engaged as advisers will change.

Autumn 2023

• Amending governing documents – the new rules on charitable Objects will take effect.

Hilary Barnard and Ruth Lesirge are the authors of Successful Governance for Museums: A Guide for Trustees (published by AIM in 2020).  They are the founders of HBRL Consulting.

Click here to read Successful Governance for Museums: A Guide for Trustees>>