Rollits Charities Legal Update 2015 Seminar

Charities Legal Update 2015

January 2015

CHARITY LAW UPDATE

Gerry Morrison

• Conflicts of Interest

• Powers of Investment

• Protection of Charities Bill

• Charity Commission Investigatory Cases Round-Up

Conflicts of Interest

• Updated Charity Commission Guidance

• Conflicts of Interest a guide for charity trustees (cc29)

• Important to manage or can lead to decisions that are:

– not in best interests of charity

– invalid

– open to challenge

• Governing documents and Conflicts of Interest Policies

Conflicts of Interest

Any situation in which a trustee’s personal interests or

loyalties could, or could be seen to, prevent them from

making a decision only in the best interests of the charity.

Note Perception

• Identify conflicts of interest

• Prevent the conflict of interest from affecting the decision

• Record conflicts of interest

Identify Conflicts of Interest

• Trustee’s personal responsibility

• Conflicts of Interest Policy/systems in place to identify

• Scenarios

– trustee benefit

– connected persons

– conflicts of loyalty

• Register of Trustees’ Interests

Prevent the Conflict of Interest from

Affecting the Decision

• Eliminate any potential affect on decision-making

• Removal of conflict in serious cases

– not pursuing a course of action

– proceeding with the issue in a different way

– not appointing a particular trustee or securing a trustee’s

resignation

Prevent the Conflict of Interest from

Affecting the Decision

• Where removal of the conflict of interest not necessary

– follow procedural requirements to manage the conflict

• No specific provisions in governing document? Follow

Charity Commission guidance

• Update governing document where necessary

• Authority of the Charity Commission?

• Charities Act 2011 - trustee benefit

Record Conflicts of Interest

• Paper trail important

• Minutes

• Governing Documents and Conflicts of Interest Policy

• Register of Interests

• Disclosure of any trustee benefits in the charity’s

accounts

Failure to Manage Conflicts of Interest

• Charity Commission statutory enquiries

• Removal of one or more of the trustees

• Restitution - order trustees to repay unauthorised

benefits

• Public criticism

• Negative PR

• Impact upon ability to deliver charity’s aims and

successfully fundraise

Powers of Investment

• The Law Commission for England and Wales

• Social investment by charities

• Variety of investments justified by furthering charity’s own mission

• Mixed motive investment (financial and mission-related)

• Social investment not a problem for most charities

• Uncertainty around charity trustees’ powers to invest and to spend in furtherance of their charity’s purposes and the combination of these powers and charity trustees’ duties

• The law relating to private benefit

Recommendations

• Statutory duty to ensure that social investment is in the

best interests of the charity

• Statutory duties to review and to consider obtaining

advice

• Statutory power to be available in respect of permanent

endowment, provided that charity trustees expect capital

preservation

• Revisions to Charity Commission guidance and HMRC

guidance and procedure

Draft Protection of Charities Bill

• Proposes giving the Charity Commission tougher powers to tackle the abuse of charities

• Introduced in the light of Charity Commission’s budget cuts

• £9 million in new funding for the Charity Commission over the next 3 years

• Extra powers including – closure of charities in which mismanagement poses a threat to

public trust

– banning people with certain criminal convictions from being charity trustees

– power to disqualify people from being trustees where it considers them unfit

• Committee of MPs and Peers will scrutinise the Bill before it is placed before Parliament

• A Report expected by the end of February 2015

Charity Commission Investigatory Case

Round-Up

Life Changing Ministries Church South Cheshire Trust

– Trustees forced to repay £100,000 to the charity

– Case opened in February 2012 following complaint that trustees

were personally benefiting from the charity’s funds

– Statutory enquiry discovered that a loft conversion at a property

owned by two of the trustees paid for from charity funds

– A property owned by the charity was sold to a trustee

– Payments totalling £72,000 to two trustees who were married


Round-Up

Life Changing Ministries Church South Cheshire Trust

– Enquiry concluded the trustees did not understand, identify or

properly manage the conflicts of interest (trustees disagreed)

– Charity funds being banked in personal accounts

– Failure to put in place proper financial controls

– Charity still in operation


Round-Up

Yoruba Language and Cultural Heritage

– Statutory enquiry opened in April 2014 after concerns raised by

two online platforms picking up on “suspicious donations”

process through their websites

– Charity’s aims to advance the education of the public in Yoruba

language, heritage and culture

– Charity Commission discovered that all of the money donated to

the charity between February 2013 and February 2014 was

“transferred from the charity’s account by way of cheques

payable to two of the trustees”

– No accounts filed by the charity to the Charity Commission


Round-Up

Yoruba Language and Cultural Heritage

– Statutory enquiry will examine whether the charity is operating

for the public benefit

– Will also investigate money paid out from the charity to the

trustees and whether the trustees have complied with and

fulfilled their duties and responsibilities

– Whether and to what extent there was mismanagement or

misconduct on the party of the charity’s trustees

– Await results


Round-Up

Village Hall Charity

– Chair of Trustees charged with offences relating to sexual assault against a child (not related to the Chair’s role in the charity)

– Police investigation

– Charity Commission involvement to ensure the trustees dealing with the incident appropriately, and had systems to protect the charity’s beneficiaries from potential harm

– Concerned the trustees had not made a serious incident report about the allegations

– Charity Commission discovered the Chair had not informed his fellow trustees of the allegations against him when he was appointed

– Trustees confirmed that when they became aware of the charges against him they voted not to exclude him as a trustee


Round-Up


– Safe-guarding policy fell short of the Charity Commission’s

guidance

– Charity Commission considered the trustees had not considered

the seriousness of the situation or dealt with the matter

appropriately, including considering suspending the trustee

pending the outcome of the criminal investigation

– Not acting with potentially placing other beneficiaries at risk


Round-Up


– Concern that a conflict of interest relating to the position of the

accused was not being appropriately managed

– Charity Commission asked to see Conflicts of Interests Policy

and told the trustees to review their safe-guarding policies

– Accused convicted and sentenced to 7 years after admitting 2

offences of sexual activity with a child and two of meeting a child

following sexual grooming

– Will be following up with the trustees to ensure they have acted

on the Charity Commission’s regulatory guidance

LEGACY GIVING

Sarah Greendale

Types of Gift

• Pecuniary Legacy: fixed sum of money

• Specific Gift: gift of specific item (e.g. property, jewellery)

• Residuary Gift: a percentage of the net Estate

Points to consider in Appeal Literature

Do:

• Use the correct terminology

• Encourage potential donors to seek legal advice:

– Regarding types of gift most suitable for them/the charity

– How best to ensure that their wishes are fulfilled

– Having their Will/Codicil drafted by a Solicitor (STEP member)


• There is no need to provide sample wording

– It might encourage DIY Wills which run the risk of

• The intended gift (or the whole Will) being invalid

• Expensive costs (and/or bad publicity) of rectifying the mistakes

• Do include the following information:

– Full charity name

– Charity address

– Registered charity number

Inheritance Tax (IHT) and Charitable

Gifts

• A gift to a qualifying charity is exempt from IHT

– The charity receives the entirety of the gift

– The IHT amount payable by the Estate is reduced

– Possible to eliminate IHT altogether

• Although reducing the IHT paid, a gift to charity affects

the amount received by other non-charitable

Beneficiaries


• The charity exemption appeals to many potential donors

– But ensure that explanation is not misleading

• Encourage potential donors to seek professional advice

on IHT

– Especially if there is a mixture of charitable and non-charitable

Beneficiaries

Inheritance Tax (IHT) – the “10%

reduced rate”

• Incentives for potential donors

– Tax rate reduced if charitable gift is 10% or more of net Estate

– IHT rate reduced from 40% to 36%

– Lower rate applies to testators who die on or after 6 April 2012

– The “10% test” components

The “10% test” Gross Estate (assets in sole name) £500,000

Less Nil Rate Band -£325,000

Net estate for “10% test” £175,000

Gift to charity of £17,500 to qualify 10% might sound like a lot to potential donors but only 10% of net estate Could encourage more people to give to charity to get the benefit of the rules

Potential advantages

• Encourages more people to make gifts

• Supporters may be encouraged to increase existing gifts

• Can lead to increased post-death variations

Woodland Trust

• “Double nil rate” legacy dispute

– Will left charity a gift “equal to the inheritance tax nil rate band”

– Law on nil rate band changed since Will made

– Son claimed spouse nil rate band in addition to the deceased

– Charity lost appeal, only received £30,000 from estate


• Ideal opportunity to raise awareness and to promote:

– Leaving a gift to charity by Will

– Reviewing any existing gifts

• Possible Deeds of Variation


• Technical points:

– Advantages of the current IHT charity exemption

– The “cost” to non-charitable Beneficiaries is reduced

– The “10% test” is based on the net Estate

– Increasing an existing gift might benefit charity and other

Beneficiaries

Take care

• Only for deaths on/after 6 April 2012

• Ensure that wording is not misleading

• Encourage potential donors to seek professional advice

In Summary

• Donating to charity in a Will has always been tax efficient

and the IHT rules are designed to encourage charitable

giving by increasing the tax benefits.

• Charities can look at taking advantage of these

opportunities to increase legacy income

CHARITIES AND VOLUNTEERS

Ed Jenneson

What is volunteering?

• Definitions:

– “a person engaged in an activity which involves spending time,

unpaid (except for travel and other out of pocket expenses),

doing something which aims to benefit some third party other

than or in addition to a close relative”

– “an activity that involves spending time, unpaid, doing something

that aims to benefit the environment or individuals or groups

other than (or in addition to) close relatives”

Three categories of protected

individuals under employment law:

• Employees

• Workers

• Volunteers

Differences

• Employee – Contract of service or apprenticeship

– Oral or in writing

– Personal service

– Mutuality of obligation (an obligation to pay work and undertake work).

– Control over employee

• Worker – Contract of employment or any other contract

– Oral or in writing

– Personal service

– Mutuality of obligation

– Less control

Key issue

• Whether there is a contractual obligation to provide work

and on the volunteer to carry it out

• Mutuality of obligations

How to reduce the risk of a legally

binding contract

• Avoid making payments except to cover actual expenses

(keep receipts)

• Reduce obligations on the volunteer

• Use “flexible language”

• Clear procedures for volunteers

Volunteers and National Minimum

Wage

• Volunteers are specifically excluded from the National

Minimum Wage if the following conditions are met:

– They receive no monetary payment other than reimbursement of

expenses actually incurred or reasonably estimated as likely to

have been incurred in the proper performance of their duties

– They receive no benefit in kind other than reasonable

subsistence or accommodation.

National Minimum Wage £6.50 21 and over

£5.13 18 to 21

£3.79 Under 18

£2.73 Apprentice (age 16 to 18)

£0 Volunteers

Get it right!

Right/protection Employee Worker Self-employed Volunteer

Right not to be unfairly dismissed (after two years’ service)

Yes No No No

Right to receive written statement of terms and

conditions Yes No No No

Itemised payslip Yes No No No

Statutory minimum notice Yes No No No

Statutory redundancy pay (after two years’

service) Yes No No No

Protection from discrimination in the workplace Yes Yes Yes Yes

National Minimum Wage Yes Yes No No

Protection from unlawful deduction from wages Yes Yes No No

Paid annual leave Yes Yes No No

Right to daily and weekly rest breaks Yes Yes No No

Pension auto-enrolment Yes Yes No No

Right/protection Employee Worker Self-employed Volunteer

Right to be accompanied at a disciplinary or

grievance hearing Yes Yes No No

Rights under data protection legislation Yes Yes Yes No

Whistleblowing protection Yes Yes Yes No

Statutory Sick Pay Yes Yes No No

Statutory maternity, paternity, adoption leave and

pay Yes No No No

Unpaid time off to care for dependants Yes No No No

Right to request flexible working Yes No No No

Time off for ante-natal care Yes No No No

Time off for trade union activities Yes No No No

Protection under the transfer of undertakings

legislation Yes No No No

Health and safety in the workplace Yes Yes Yes No

Right to volunteer

• No statutory right to volunteer

• Employer’s discretion

Training

• Not a benefit in kind for National Minimum Wage

purposes if it is:

– Necessary to perform the duties of the voluntary worker

– For the sole or main purpose of improving the voluntary worker’s

ability to do the work

– Necessarily acquired in the course of the voluntary work

What should a Volunteer Agreement

contain?

• Role

• Induction and training

• Supervision and support

• Expenses

• Insurance

• Health and safety

• Confidentiality

• Leaving provision

• Disclaimer

Things to avoid

• Set hours

• Performance criteria

• Remuneration

• Notice provisions

• Mutuality of obligation

• Personal service

• Control

Gerry Morrison

Partner

[email protected]

01904 688539

Ed Jenneson

Partner

[email protected]

01482 337341

Sarah Greendale

Solicitor

[email protected]

01904 688524