Changes to ex gratia payments come into effect

The Act introduces the concept of ''small'' ex gratia payments.  There is a sliding scale of what constitutes a small payment.  For a charity with an annual income of over £1m, a small ex gratia payment is one of £20,000 or less.  In a departure from the previous procedure, small ex gratia payments no longer need to be referred to the Charity Commission for approval. 

The small payment threshold applies per payment, not per year.  In other words, a large charity could potentially process and approve a number of ex gratia payments of £20,000 or less in any one year, without needing to refer any of them to the Commission. 

A further significant change is that charity trustees can delegate the approval of ex gratia payments to officers/paid employees of the charity.  As long as the nominated officer concludes that the charity's trustees could reasonably be regarded as being under a strong moral obligation, the ex gratia payment can be approved by the charity.  However, the delegation doesn’t happen automatically, and a charity's trustees need to pass a resolution to delegate this power to their officers.  Now would therefore be a good time to review your charity's Scheme of Delegation, to ensure it is fit for purpose in the light of these changes. 

Charity trustees remain responsible for decisions to make ex gratia payments.  With this in mind, we anticipate that many trustees will set a threshold, above which ex gratia payments can only be approved by them.  Our guess is that many charities will choose a threshold of between £20,000 and £50,000. 

The legal test for making an ex gratia payment hasn’t changed, apart from the new delegation provision.  The leading case of Re Snowden [1970] still applies, and this aspect of section 106 Charities Act 2011 is unaltered.  In brief, a high level of moral obligation is required, such that, if the charity were an individual, it would be morally wrong for it to refuse to make the payment. 

The procedure for rejecting an ex gratia payment is also unchanged.  This can still be done at officer/employee level and there is no upper limit on the size of ex gratia application that a charity's officers can reject.