Legal update

Philip Norton Eversheds, Daynes Hill & Perks, Paston House, Princes Street, Norwich, NR3 1BD; Tel: +44 1603 272727; Fax +44 1603 630588

Philip Norton is the Head of the Charities Business Development Unit at Eversheds, Norwich, Solicitors and the Legal Editor of the Journal of Nonprofit and Voluntary Sector Marketing.

ABSTRACT This update contains developments on United Kingdom charity law, as itpertains to fundrais- ing and other marketing strategies. Later issues of the journal will consider United States and European law.

I f readers have any particular questions on charity law, please write to the Editor at the Publisher’s oflces, so that he can answer ques- tions which are ofgeneral interest to readers.

DEREGULATION The Deregulation Task Force attempted to reduce ‘red tape’ which demands the commitment of a lot of resources and energies by charities. Perhaps the two areas where there is the greatest impact of rules and regulations on charities are in relation to the control of fundraising and the requirements for accounting.

CONTROL OF FUNDRAISING Part I1 of the 1992 Charities Act dealing with the control of fundraising was brought into effect from 1st March, 1995 by the Charities Act 1992 (Commence- ment Number 2) Order 1994 (SI 1994 Number 3023), as was the Charitable Institutions (Fund-raising) Regulations

1994 (SI 1994 Number 3024). Bctwcen them, they provide regulations as to the contractual relationship between a profcs- sional fundraiser or commercial par- ticipator and a charity. Broadly speaking, clear statements informing donors of the proportion of their donation which will pass to the fundraiser must be provided. The Regulations also provide for public access to accounts and records relating to such fundraising agreements.

PUBLIC CHARITABLE COLLECTIONS The Home Office consultative document on public charitable collections was pub- lished in July 1994, but we still await new regulations which will replace relatively old legislation such as Police, Factories, etc. (Miscellaneous Provisions) Act 1916 and House to House Collections Act 1939. I t is likely that changes to statute will be required following the consulta- tion period which closed at the end of 1994. Until the new regulations are in force, existing rules should be followed.

ACCOUNTING REGULATIONS Proposals put forward by the Deregula- tion Task Force relating to accounts were embodied in a Home Office consultation document on Part VI of the Charities Act 1993 which was published at the end of January 1995. At the same time, a final draft of the Charities SORP (Statement of Recommended Practice) was pub- lished. The consultation period ended on

17th May and regulations are to become effective for the accounting period begin- ning on or after 1st March, 1996. Some of the principal changes will be in relation to the form of annual accounts, which will be determined by the charity’s gross income or total expenditure. For ex- ample, where income does not exceed &1,000, a receipts-and-payments account (only) must be made available to the public on request. However, where income exceeds S1,OOO but not &10,000, such accounts must be submitted to the Charity Commissioners on request. For those charities with income between &10,0oO and S100,000, annual accounts must be submitted, but still (only) on a receipts-and-payments basis. Once the &100,000 threshold is breached, accounts must be prepared on an accruals basis. For those who go over the level of S250,OOO gross income or total expenditure per annum, not only must accounts be on an accrual basis but they must be audited. In the case of all charities with gross income or expenditure over &10,000, an inde- pendent examination of accounts will suffice instead of an audit. Under that threshold, a new ‘light touch’ regime has been introduced. For those charities with income in excess of &100,000, the ac- cruals-based accounts must also contain a statement of financial activities (SOFA), a summary of income and expenditure and a balance sheet. Specialist account- ancy advice should probably be obtained in all cases save those to which the ‘light touch’ regime applies.

INVESTMENT POWERS Wide powers of investment may be provided for charity trustees if their current powers are too restrictive and if control systems for the proper manage- ment of charity funds are part and parcel of an application for a Scheme. The

Charity Commission will be concerned that the trustees’ investment poiicy im- poses a requirement to obtain profes- sional advice in relation to diversification and that if powers of delegation are given, suitable safeguards against inappropriate use of discretionary powers are built in.

The Charities (Trustee Investments Act 1961) Order 1995 substituted the proportions of 25:75 between the nar- rower and wider ranges of investments for the original 50:50 split. Additional Powers Orders in 1994 also added to the list of permitted investments.

DERIVATIVES The Charity Commission is reviewing charity investment powers and holds the view that only charities with appropriate powers in their governing instruments may use derivatives and then only if professional advice is taken.

TRUSTEE REMUNERATION In Volume 2 of ‘Decisions of the Charity Commissioners’, it is made clear that, in the absence of specific provision to pay trustees in the charity’s governing instru- ment, an application must be made to the Commissioners for a Scheme authorising such payments. Authority will only be given if the involvement of the trustee is exceptional and beyond what one might consider normal duties of trustees, and necessary for the proper performance of the objects of the charity. Generally, it must be in the interests of the charity that the trustee be paid and any payments must be commensurate with the financial resources of the charity and the work undertaken.

TRUSTEE INDEMNITY INSURANCE Volume 2 of the ‘Decisions of the Charity

Commissioners’ also sets out the terms upon which charities will be permitted to purchase indemnity insurance for trustees. Broadly speaking, this will not be permitted in respect of acts trustees know to be wrong, their wilful neglect or recklessness. Cover may therefore be allowed in respect of acts or omissions unless the trustees knew them to be a breach of trust or breach of duty or acts or omissions committed by a trustee in reckless disregard of whether they are a breach of trust or duty.

RESEARCH Guidelines were issued in June 1994 by the Charity Commissioners on the way in which charities should deal with the payment of funds for research projects. Broadly speaking, the guidelines suggest ways in which funds should be controlled and how the results of research should be disseminated.

NATIONAL HEALTH SERVICE (NHS) CHARITIES REVIEW AND HOSPITALS Guidance has been issued to health service bodies in respect of consolidation and registration of the considerable number of health service-based charitable funds. A Guide on NHS Charitable Funds is now available for purchase.

The way in which funds are raised for and used by hospitals is a cause for con- cern and it is recommended that specific terms be agreed early on in such ac- tivities. (Volume 3, ‘Decisions of the Charity Commissioners’.)

CHARITY COMMISSIONERS’ PUBLICATIONS Leaflcts are under regular rcvicw by the Charity Commission, who havc recently reviewed their free leaflets on incorpora-

tion of charity trustees, fundraising, in- vestments, political activities and others.

The last volume (Number 3) of ‘Deci- sions of the Charity Commissioners’ was published in January 1995, and it deals with issues relating to charitable status, schemes conferring wider powers of in- vestment and powers of amendment, and also how funds raised for, and donated to, NHS hospitals should be dealt with.

The 1994 Annual Report ofthe Charity Commissioners was published in May 1995.

The Charity Commission also now publishes a Newsletter twice a year.

RESERVES In October 1995, the Charity Commis- sion published its policy document on investment reserves. Broadly speaking, it accepts that income reserves can be held if it can be shown that to do so is in the interests of prudent and efficient administration. There must also be a balancing of the needs of present and future beneficiaries when committing to a certain level of reserves. Funds may also be held in reserve if there is a clear and identified purpose for doing so.

LAND REGISTRATION Rules relating to charity land registration were amended as from 3rd April, 1995 so that if a charity is the registered proprietor of land and it wishes to register new trustees, it must also apply for a restric- tion to be entered on the register in relation to dealings without consent.

REVENUE AND CUSTOMS A Charity Fundraising Pack is now avail- able from the Revenue or Customs and Excise, providing guidance on trading by charities and VAT for charities.