Charity Law and Governance e-alert - Summer 2021
10 June 2021
In this Summer edition we start with a detailed summary of the recent High Court's judgment in the long-running Kids Company trial, which has given us a much clearer picture about the court's expectations of charity trustees.
Following the temporary concession made as a result of the large number of charity events being cancelled due to Covid-19, we also take a look at the new HMRC guidance on claiming Gift Aid on waived refunds.
We outline some of the main proposals of the new Charities Bill which will bring into force long-awaited reforms designed to reduce the amount of unnecessary bureaucracy faced by charities.
Finally we look at two of the ways in which a solvent charity might be wound up - something which can happen for any number of reasons even in less turbulent times.
We hope this update has been of interest. Please feel free to share with your colleagues and if you have any questions on any of the matters discussed, please don't hesitate to drop us a line.
The Kids Company judgment – what does it mean for charity trustees?
On 12 February, Mrs Justice Falk gave the High Court's judgment in the long-running Kids Company trial, during which seven of the former charity's directors and Camila Batmanghelidjh, its chief executive, defended a claim by the Official Receiver that they should be disqualified from acting as company directors. Having been "wholly satisfied" during the trial that no disqualification order was necessary, the judge found in favour of the defendants, giving us a much clearer picture about the court's expectations of charity trustees – the vast majority of whom are, of course, volunteers.
New HMRC guidance – claiming Gift Aid on waived refunds and loan repayments
Last month, HMRC updated its Gift Aid guidance to confirm that the tax relief can now be claimed on refunds and loan repayments that have been waived by the donor. Previously, HMRC did not regard such waivers as being eligible for the scheme unless the funds were returned to the donor beforehand on the basis that, in order to qualify, a donation must involve "payment of a sum of money" to a charity.
The change has come about largely as a result of the large number of charity events that had to be cancelled as a result of Covid-19, following which HMRC introduced a temporary concession that enabled donors to have the sums they had paid for their tickets to be treated as qualifying donations, the idea being to help improve cashflows during what was a difficult time for many charities.
The new Charities Bill – what will it cover?
On 22 March, the government published its response to the Law Commission's 2017 Report, Technical Issues in Charity Law, which made a number of recommendations to maximise the efficient use of charitable funds whilst ensuring proper safeguards for the public. The Report made 43 recommendations, the vast majority of which the government has accepted in principle.
The new Charities Bill will not make sweeping changes to charity law once it has been enacted, but it will bring into force long-awaited reforms designed to reduce the amount of unnecessary bureaucracy faced by charities. As Lord Ashcroft put it when the Law Commission's review was first announced:
"In my 2012 official review of the Charities Act 2006, I found that charities faced a number of historic obstacles under the current law. These unnecessary burdens on trustees act like barnacles on a boat, causing a drag when all should be plain sailing."
Many of the recommendations are technical in nature (the clue is in the name of the Report) but, taken together, they will nonetheless have a significant impact on the sector. The government response is divided into 13 sections, covering each of the areas identified for review by the Law Commission.
How to wind up a solvent charitable company
Thankfully, so far at least, we have not seen an especially high number of charities finding it necessary to close, despite the prevailing state of affairs with Covid-19. But there are various reasons that the trustees of a charity might decide to close it – even in less turbulent times. They might decide, for example, that the charity's services would be better carried out by a larger, better-funded organisation, or it might simply be that, having been established to meet a particular need, the charity's services are no longer required.
We will focus in this issue on two ways in which a solvent charitable company may be wound up – one rather more involved and, potentially, much more expensive than the other.