2006 Chapter 50

© Crown Copyright 2006

Explanatory Notes to Acts of the UK Parliament are subject to Crown Copyright protection. They may be reproduced free of charge provided that they are reproduced accurately and that the source and copyright status of the material is made evident to users.

It should be noted that the right to reproduce the text of these Explanatory Notes does not extend to the Queen's Printer imprints which should be removed from any copies of the Explanatory Notes which are issued or made available to the public. This includes reproduction of the Notes on the internet and on intranet sites. The Royal Arms may be reproduced only where they are an integral part of the original document. The text of this internet version of the Explanatory Notes which is published by the Queen's Printer of Acts of Parliament has been prepared to reflect the text in printed form and as published by The Stationery Office Limited as the Charities Act 2006, ISBN 0105650064. The print version may be purchased by clicking here. Braille copies of the Explanatory Notes can also be purchased at the same price as the print edition by contacting TSO Customer Services on 0870 600 5522 or e-mail: customer.services@tso.co.uk.

Further information about the publication of legislation on this website can be found by referring to the Frequently Asked Questions.

To ensure fast access over slow connections, large documents have been segmented into "chunks". Where you see a "continue" button at the bottom of the page of text, this indicates that there is another chunk of text available.

These Notes refer to the Charities Act 2006 (c.50) which received Royal Assent on 8 November 2006

CHARITIES ACT 2006

________________

EXPLANATORY NOTES

INTRODUCTION

1.     These explanatory notes relate to the Charities Act 2006 (c. 50) which received Royal Assent on 8 November 2006. They have been prepared by the Cabinet Office in order to assist the reader in understanding the Act. They do not form part of the Act and have not been endorsed by Parliament.

2.     The notes need to be read in conjunction with the Act. They are not, and are not meant to be, a comprehensive description of the Act. So where a section or part of a section does not seem to require any explanation or comment, none is given.

SUMMARY

3.     The Act has 80 sections and 10 Schedules and is divided into four Parts.

4.     Part 1 (sections 1-5) deals with the definition of a charity and of charitable purposes.

5.     Part 2 (sections 6-44) deals with the regulation of charities and is divided into 11 Chapters as follows:

• Chapter 1 (sections 6 and 7 and Schedules 1 and 2) establishes the Charity Commission and deals with the Commission's objectives, functions and constitution;

• Chapter 2 (section 8 and Schedules 3 and 4) covers the creation of a tribunal to hear appeals against some types of decision made by the Charity Commission;

• Chapter 3 (sections 9-14 and Schedule 5) covers the registration of charities, including new arrangements for the registration of larger excepted charities and for the regulation of exempt charities. (Excepted charities are charities not at present obliged to register with the Charity Commission, though they are regulated by it. Exempt charities are charities at present neither registered with nor regulated by the Commission);

• Chapter 4 (sections 15-18) covers changes to the rules governing the application, by scheme, of charity property "cy-prSs". Charity property is said to be applied "cy-prSs" when it is used for purposes different from, but close to, the purposes for which it was originally given;

• Chapter 5 (sections 19-27) covers the assistance and supervision of charities by the court and the Charity Commission. It includes new powers for the Commission:

—     (section 19) to suspend or remove trustees, employees etc. from membership of their charity;

—     (section 20) to direct charity trustees to take certain actions in administering their charity;

—     (section 21) to direct charity trustees to apply the charity's property in a certain way;

—     (section 24) to give advice and guidance to charity trustees;

—     (section 25) to determine who are the members of a charity; and

—     (section 26) in the course of statutory investigations, to enter premises and take possession of information and documents.

Chapter 5 also includes a provision (section 22) relaxing the rules on the advertising of schemes, a provision (section 23) to allow Common Investment Funds and Common Deposit Funds to accept investments from Scottish and Northern Irish charities, and a provision (section 27) to extend the circumstances in which the authority of the court or the Charity Commission is not required for the grant of mortgages over charity land;

• Chapter 6 (sections 28-30 and Schedule 6) covers the audit and examination of the accounts of unincorporated charities, and the duties of auditors and examiners of those charities, and makes provision for the preparation and audit of group accounts;

• Chapter 7 (sections 31-33) affects charitable companies only, covering changes to the rule restricting amendments to their constitutions, and the audit and examination of their accounts;

• Chapter 8 (section 34 and Schedule 7) provides for the Charitable Incorporated Organisation, a new legal form for charities;

• Chapter 9 (sections 35-39) covers changes to the rules on the disqualification of persons from acting as trustees, the remuneration of charity trustees, the relief of trustees from personal liability for breach of trust or duty, and the purchase by trustees of trustee indemnity insurance;

• Chapter 10 (sections 40-42) covers changes to the rules under which small unincorporated charities may transfer their property to other charities, replace their current charitable purposes with new ones, or modify their constitutional powers or procedures;

• Chapter 11 (sections 43 and 44) covers the spending of capital endowment funds by charities, and the registration of mergers between charities.

6.     Part 3 (sections 45-71) deals with fundraising by, and the funding of, charities and other benevolent or philanthropic organisations and is divided into three Chapters as follows:

• Chapter 1 (sections 45-66) establishes the arrangements for the conduct and regulation of public charitable collections;

• Chapter 2 (sections 67 -69) makes changes to the rules requiring statements to be made to donors and consumers by, respectively, paid fundraisers and commercial participators. It also gives the Minister for the Cabinet Office a reserve power to regulate most forms of fundraising by charities and by other benevolent and philanthropic organisations;

• Chapter 3 (sections 70 and 71) contains new powers for the Minister for the Cabinet Office, Secretaries of State, and for the National Assembly of Wales, to give financial assistance to charities and other benevolent and philanthropic organisations.

7.     Part 4 (sections 72-80) contains the final provisions, covering:

• (section 72) a power to allow the Secretary of State to make regulations authorising public bodies to disclose information to the proposed new Northern Ireland charity regulator (if and when it comes into existence), to put that regulator on a par with the charity regulators in the other UK territories;

• (section 73) a requirement on the Minister for the Cabinet Office to institute a review of the operation of the Act within five years of its passing;

• (section 74) the rules applying to the relevant Minister when he makes an order or regulations under the Act;

• (section 75 and Schedules 8-10) amendments to, and repeals of, other Acts of Parliament, and transitional provisions and savings;

• (section 76) a power for the Minister by order to amend charity legislation so as to make it easier to consolidate that legislation;

• (section 77) an order-making power for the Minister to make changes to the 1993 Act and this Act to reflect changes in company law;

• (section 78) interpretation of words and phrases;

• (section 79) commencement;

• (section 80) short title and extent.

BACKGROUND

8.     In July 2001 the Prime Minister commissioned a review of the law and regulation of charities and other not-for-profit organisations. The review was carried out by the Prime Minister's Strategy Unit and was published (as "Private Action, Public Benefit") in September 2002 ¹. It was not a statement of settled Government policy but an analysis of the strengths and weaknesses of the current legal and regulatory framework accompanied by a series of recommendations, addressed to the Government, for change. Before responding to these recommendations the Government sought views on them through an open public consultation which ran from September 2002 to January 2003.

¹ Available at http:// www.strategy.gov.uk/work_areas/voluntary_sector/index.asp

9.     In July 2003 the Government published "Charities and Not-for-Profits: a Modern Legal Framework" ², which:

² Available at http://communities.homeoffice.gov.uk/activecomms/ac-publications/publications/290701/charitiesnotforprofit.eng.pdf

• summarised the results of the public consultation on the Strategy Unit's recommendations; and

• stated the Government's acceptance of almost all of the recommendations and explained how the accepted recommendations were to be taken forward.

10.     This Act will implement a majority of the accepted recommendations, with the remainder to be (or, in some cases, having already been) implemented either through other legislation or by administrative action.

11.     The Act was published as a draft Bill on 27 May 2004 for pre-legislative scrutiny by a Joint Committee. The Joint Committee's report ³ was published on 30 September 2004. The Government's response ⁴ to that report was published on 21 December 2004 alongside the Bill itself, which had been introduced to the House of Lords the previous day. The Bill completed Second Reading and Grand Committee in the House of Lords but fell when Parliament was dissolved on 11 April 2005. It was re-introduced in the House of Lords on 18 May 2005, and completed its passage through Parliament in the House of Lords on 7 November 2006, receiving Royal Assent on 8 November 2006.

³ Available at http://www.publications.parliament.uk/pa/jt/jtchar.htm

⁴ Available at http://www.parliament.uk/parliamentary_committees/jcdchb/jcdchb_reports_and_publications.cfm

THE ACT

COMMENTARY ON SECTIONS

12.     Many of the provisions in the Act amend the Charities Act 1992 and the Charities Act 1993, which are referred to below as "the 1992 Act" and "the 1993 Act" respectively.

Sections 1 - 3: Meaning of "charity"; Meaning of "charitable purposes"; The "public benefit" test

13.     The preamble to the Statute of Charitable Uses 1601 (sometimes known as the Statute of Elizabeth I) contained a list of purposes or activities that is sometimes described as the first statutory definition of charitable purposes; but that list - because it was in the preamble, not the body of the Act - did not form part of the statute law. It was, in effect, a list of purposes or activities that the State believed were of general benefit to society, and to which the State wanted to encourage private contributions.

14.     The list in the preamble to the 1601 statute has nevertheless formed the foundation of the modern definition of charitable purposes, which has developed entirely through case law. This has come about because the courts, in considering whether or not a particular purpose was charitable in law, have tended to look for an analogy between the purpose under consideration and the 1601 list, and to recognise the purpose as charitable if an analogy with the 1601 list could be found.

15.     Section 1 provides a general statutory definition of charity for the purposes of the law for the first time. It follows the definition of charity in the Charities Act 1993.

16.     Section 1(1) establishes the meaning of charity. By specifying that a body or trust is a charity if established for charitable purposes "only", section 1(1)(a) preserves the current rule to the effect that a body or trust which has non-charitable as well as charitable purposes is not a charity.

17.     Section 1(1)(b) excludes institutions outside England and Wales from the scope of charity as defined by the Act since the jurisdiction of the High Court extends only to England and Wales.

18.     Subsections (2) and (3) of section 1 deal with references to a charity in legislation apart from this Act. Subsection (3) covers legislation and documents in which a charity is defined by reference to the Charitable Uses Act 1601 or the preamble to that Act and provides for that definition to be supplanted by the one in this Act. Subsection (2) covers all other definitions of charity in legislation apart from this Act and preserves those definitions.

19.     Section 2 of the Act contains the first statutory definition of "charitable purpose". This definition still relies on a considerable body of case law.

20.     The meaning of "charitable purpose" is supplied by section 2(1), which provides that a purpose is charitable if it meets two criteria:

• that it falls under one or more descriptions or "heads" of charity in section 2(2); and

• that it is for the public benefit.

21.     Each of the paragraphs in section 2(2) is a description or "head" of charity rather than a fully-stated purpose in itself. Within each of those descriptions lie a range of purposes all of which fit the description but each of which is a different purpose in its own right. The list of descriptions, taken as a whole with the purposes underlying the descriptions, encompasses everything which is to be a charitable purpose.

22.     The list of descriptions of charitable purposes in subsection (2) of section 2 contains 12 specific descriptions (paragraphs (a) to (l)) and one general description (paragraph (m)) which brings in the purposes described by subsection (4). The list of specific descriptions covers the great majority of purposes that are recognised as charitable but does not cover everything: paragraph (a) of subsection (4) covers those purposes that are currently recognised as charitable but that do not fall under any of the specific descriptions in paragraphs (a) to (l).

23.     Paragraphs (b) and (c) of section 2(4) cover purposes that are analogous to, or within the spirit of, any other charitable purposes (i.e. purposes falling within any of paragraphs (a) to (l) of subsection (2), existing charitable purposes, or purposes which themselves have been recognised as charitable under subsection (4)(b) or (c)). These provisions enable the meaning of "charitable purpose" to be expanded in the future by allowing for the possibility of new charitable purposes to be recognised.

24.     Subsection (5) of section 2 preserves the existing meaning of the terms used in the specific descriptions in subsection (2) or (3) of that section.

25.     Section 3 deals with public benefit. Under the existing law there is a presumption that purposes for the relief of poverty, the advancement of education, or the advancement of religion - in other words the purposes that would fall under paragraphs (a) to (c) of section 2(2) - are for the public benefit. No other purposes benefit from that presumption. The effect of the presumption at present is that, when the status (charitable or non-charitable) of an organisation established for the relief of poverty, the advancement of education, or the advancement of religion is being considered, the organisation's purpose is presumed to be for the public benefit unless there is evidence that it is not for the public benefit. By contrast, organisations established for all other purposes, which do not benefit from that presumption, have at the time their status is being considered to provide evidence that their purpose is for the public benefit.

26.     Subsection (2) of section 3 abolishes the presumption that organisations for the relief of poverty, the advancement of education, or the advancement of religion enjoy, putting all charitable purposes on the same footing. Abolishing the presumption will not by itself have the effect of depriving poverty relief, educational and religious organisations that were registered as charities while the presumption existed of their charitable status.

27.     Subsection (3) makes clear that the term "public benefit", wherever it occurs in sections 1-3, refers to the existing concept in charity law in England and Wales. The concept of public benefit will remain in the common law. Guidance that the Charity Commission issues under section 4 (see below) will explain the public benefit concept.

Section 4: Guidance as to operation of public benefit requirement

28.     The Act gives the Charity Commission a set of new objectives (see section 7), one of which is to promote understanding and awareness of the operation of the public benefit requirement. Section 4 requires the Commission to issue guidance in pursuance of that objective (subsection (1)) and allows the Commission to revise its guidance from time to time (subsection (3)). Revision of the guidance will be needed if there are changes in society which bring about developments in the legal concept of public benefit.

29.     Subsection (4) requires the Commission to carry out consultations before issuing its guidance under this section. It must also carry out consultations before revising guidance that it has already issued, unless it thinks that consultations are not needed (because, for example, the revisions are so slight as not to justify the time and expense of consultations).

30.     Subsection (5) requires the Commission to publish its guidance under this section, but allows it to choose the most appropriate manner of publication - for example, as a printed document; as a document on a website; etc.

31.     Although the Commission will be legally required by subsection (1) of this section to issue guidance, the guidance will not be legally binding on charity trustees. Subsection (6) will not put charity trustees under a legal obligation to agree with or to follow the guidance but it will require them to take the guidance into consideration when doing anything, in the administration of their charity, to which the guidance is relevant.

Section 5: Special provisions about recreational charities, sports clubs etc.

32.     Subsections (1) - (3) of this section make changes to the Recreational Charities Act 1958. The 1958 Act provides that:

• it is a charitable purpose to provide, in the interests of social welfare, facilities for recreation or other leisure-time occupation where those facilities are made available either to the public as a whole or to women only (section 1(2) of the 1958 Act);

• certain purposes connected with the provision of facilities for the welfare of miners are charitable purposes (section 2 of the 1958 Act).

33.     The Act affects both of these provisions of the 1958 Act, which are now thought to be incompatible with the European Convention on Human Rights.

34.     Subsection (2) of the section amends section 1(2) of the 1958 Act so that facilities made available to men only are to be regarded as charitable on the same basis as facilities made available to the public as a whole or to women only. This amendment does not affect the charitable status of any organisation which is currently charitable under the 1958 Act.

35.     Subsection (3) repeals section 2 of the 1958 Act. The effect of this will be that miners' welfare organisations that can show that they are charitable under the definition of charity contained in section 1 of the Act will retain their charitable status. Other miners' welfare organisations will not retain their charitable status.

36.     Subsections (4) and (5) make special provision for sports clubs which are registered with the Her Majesty's Revenue and Customs under the Community Amateur Sports Club (CASC) scheme established by the Finance Act 2002. Some such clubs are established for purposes which would make them charities under the definition in section 1 of this Act. Subsection (4) of this section provides that any club which has charitable purposes and is registered as a CASC is not a charity.

Sections 6 and 7 and Schedules 1 and 2: The Charity Commission

37.     Currently the Charity Commission has no legal existence as a body: the functions that are usually described as "the Charity Commission's" functions are in fact functions held by the Charity Commissioners for England and Wales (the "Commissioners") personally. Subsection (1) of section 6 inserts a new section, 1A, into the 1993 Act. Section 1A(1) creates a new body corporate called the Charity Commission for England and Wales, with an equivalent name in Welsh. The Commission will be a non-Ministerial Government Department and subsections (4) and (5) ensure that it will have a significant degree of independence from Ministers and other Government Departments in the performance of its functions.

38.     Other provisions in section 6 transfer the Commissioners' functions to the new Commission (subsection (4)), abolish the office of Charity Commissioner (subsection (3)), and ensure that references to the Commissioners in other enactments passed before the commencement of this section are, from its commencement, understood as references to the new Commission (subsection (5)).

39.     Subsection (7) of section 6 gives effect to Schedule 2 of the Act, which contains provisions to deal with aspects of the transition between the Commissioners and the new Commission.

40.     Provisions for the new Commission's membership, staffing, committees, procedures, and annual reporting are in Schedule 1A to the 1993 Act, inserted by Schedule 1 to the Act and given effect by section 6(2) of it.

41.     Section 7 inserts new four sections - sections 1B to 1E - into the 1993 Act. These provide the Commission with, respectively, five objectives, six general functions, six general duties, and incidental powers. The Commission's objectives describe what the Commission is to seek to achieve; its functions describe the activities it is to carry out in seeking to achieve its objectives; and its general duties describe ways in which, as far as it practicable, it must act, and matters to which it must have regard, in performing its functions and in managing its affairs. Other provisions in the Act require the Commission to report annually to the Minister for the Cabinet Office on the discharge of its functions, the extent to which it believes its objectives have been met, and the management of its affairs (see paragraph 11 of Schedule 1A to the 1993 Act, inserted by Schedule 1 to the Act). Subsection (2) of section 1E is to ensure that the Commission does not directly involve itself in the administration of any charity.

Section 8: The Charity Tribunal

42.     Under the existing law, a right of appeal to the High Court exists in relation to some decisions of the Charity Commissioners. This section creates a new tribunal to act as the "court of first instance" for appeals and applications in respect of certain decisions of the new Charity Commission. It also enables the Tribunal to consider matters referred to it by the Attorney General or, with the Attorney's consent, by the Charity Commission, the reference being made before the Commission has made any decision on the matter.

43.     Subsection (1) of section 8 provides for a new Part 1A of the 1993 Act to be inserted after section 2 of the 1993 Act. Part 1A contains new sections 2A to 2D covering, respectively, the creation of the Tribunal; its practice and procedure (which provides (section 2B(1) to (9)) for the matters to be covered in the Lord Chancellor's rules which would regulate the exercise of the right of appeal or to make a reference to the Tribunal and practice and procedure); appeals from the Tribunal to the High Court; and the powers of the Attorney General to intervene in proceedings before the Tribunal, or on appeal from the Tribunal to the High Court, where he is not a party to those proceedings.

44.     Subsection (2) of section 8 gives effect to Schedule 3, which inserts the new Schedule 1B into the 1993 Act. Schedule 1B covers the membership of the Tribunal and appointments to it; its staff and facilities; the composition of its panels, who are to exercise its functions; and its practice and procedures.

45.     Subsection (3) of section 8 gives effect to Schedule 4, which inserts the new Schedules 1C and 1D into the 1993 Act. Schedule 1C provides for specified rights of appeal to the Tribunal against specified decisions of the Commission, prescribing, in the case of each specified decision, which persons have the right of appeal and what powers the Tribunal has in relation to the appeal or to the Commission's decision or action which is the subject of the appeal. The powers of the Tribunal are set out in the table in new Schedule 1C. The Commission would be the respondent to such an appeal. In certain cases the Tribunal would consider applications to review matters (being those listed in paragraph 3 of Schedule 1C) in the same way as the High Court would consider an application for judicial review. Those reviewable decisions are listed in paragraph 3(2)(a) to (g), along with orders made by the Commission under section 69(1) of the 1993 Act (paragraph 3(2)) which are also reviewable. Schedule 1D makes provision for references to the Tribunal. The Commission (paragraph 1) will be able to refer to the Tribunal matters involving the operation or the application of charity law relating to its functions. The Attorney General (paragraph 2) will be able to refer to the Tribunal questions involving the operation or the application of charity law. The Commission would require the consent of the Attorney General to make a reference. Schedule 1D makes further provision in respect of such references, including;

• the powers of the Commission in relation to matters referred to the Tribunal;

• the suspension of time limits whilst a reference is in progress;

• enabling the Commission to act before the Tribunal has made its decision if all the parties to the proceedings, and any charities likely to be affected by the Commission's action, agree that the Commission can act;

• rights of appeal in respect of matters already determined on reference to the Tribunal.