CHARITIES: An introduction to UK-wide

The UK Charity Sector: An Overview

The UK charity and non-profit sector is a diverse and innovative one, across which, in the current challenging economic, social and political climate, charities and other not-for-profit organisations continue to show resilience and resourcefulness in furthering their purposes. This is despite increasing demand for their services due to the cost-of-living crisis, following in the wake of the pandemic, and funding that often has not kept pace with that rising demand.

The sector continues to navigate sensitive cultural debates. Bates Wells has worked with charities who have found themselves caught up in culture wars relating to issues such as trans rights, historic links to the slave trade and the call for repatriation and restitution of cultural artefacts held in UK museums and other institutions. At times, charities have faced criticism from some quarters for being too political and told they should not campaign, even though campaigning is a time-honoured and often very effective way of achieving charitable objectives.

Global unrest and political uncertainty are troubling charities, particularly those operating in conflict zones, including Ukraine and the Middle East. Typically, our support for these charities involves navigating difficult issues relating to the safe transfer of funds and issues arising from sanctions.

It has been reassuring to hear statements in the last year from the current Chair of the Charity Commission, Orlando Fraser, confirming that, in the exercise of its statutory functions, the Commission will be “led solely by the law” and that he is “determined to lead an expert Commission that is fair, balanced, and independent”. The Commission has been particularly busy in relation to the broad range of guidance it issues for the sector – it is continuing its project to shorten and simplify existing guidance, and it has also produced some significant new or updated guidance. Its updated guidance on charity meetings encourages all charities to update their governing documents to allow for hybrid or virtual trustee or member meetings. We are also working with charities to reflect the Commission’s new guidance on “Accepting, refusing and returning donations to your charity” in their own policies and procedures.

In the Commission’s regulatory role, we have seen the number of trustee disqualifications and official warnings given to charities rising significantly in the reporting period 2023–24 in comparison to the previous two years. There continue to be challenges in the First-tier Tribunal to the exercise of the Commission’s powers and while most cases are unsuccessful, we have seen the first few cases where a trustee has been successful in reducing the scope of a trustee disqualification order.

We have noticed an increase in the number of complaints, both internal and external, being dealt with by charities, which are often held to a higher ethical standard than other organisations by many of their stakeholders. This can raise complex issues around investigations and decision-making. Our team regularly helps clients to navigate these difficult issues, but also to ensure that organisations are properly prepared, with practical and user-friendly policies that can help to minimise complaints and deal more effectively and efficiently with those that do arise.

How Has the Legal Framework Changed During This Time of Relative Strain on the Sector?

The Charities Act 2022 has been brought into force in stages during 2023 and 2024 and should help to make some actions smoother for charities. The 2022 Act removed some tricky technical obstacles for charities and streamlined processes in the following areas:

• • Making changes to governing documents - this should now be simpler for some unincorporated charities and charities established by Royal Charter.
  • Selling, leasing or otherwise disposing of charity land – some of the procedures have now been simplified.
  • Charity mergers – the new rules should allow most gifts to charities that merge to take effect as gifts to the charity they have merged with.
  • Permanent endowment – the Act introduced new statutory powers to enable charities to spend and borrow against permanent endowment funds in certain circumstances without Charity Commission authority; a new statutory power enables charities that have opted into a “total return approach” to investment to use permanent endowment to make social investments.
  • Trustees – the Act overcomes a couple of anomalies in the power to remunerate trustees and enables the Commission to confirm defective or potentially defective trustee appointments.
  • Fundraising appeals – there are now simpler requirements for trustees to follow if an appeal does not raise the amount needed to deliver its aim, raises too much or circumstances change, and the donations cannot be used as intended.

Some final significant changes yet to be brought in from the Charities Act 2022 are those intended to make it easier for charities to make ex gratia payments, in situations where there is no strict legal obligation but there is recognition of a moral obligation. These provisions were put on hold by the previous government, and it is hoped they will be brought into effect during the coming year as again they will bring in a streamlined process, making life easier for charities.

Charities, along with all employers, will be preparing to implement the sweeping changes to employment law proposed by the new government. Charities also continue to be affected by law in other areas and our specialists in data protection, safeguarding, campaigning, consumer protection and online safety, for example, continue to be busy advising clients in this sector. We are also already working with clients on the new procurement regime being put in place in 2025 under the Procurement Act 2023 which will impact some charities, either as procurer or supplier. Charitable companies, and charity trading subsidiaries will also be affected by changes to company law being brought in over the next few years.

The year ahead will see updates to several sector codes, including the Code of Fundraising Practice and the Charity Governance Code. A new set of charity investment governance principles aims to help charities to manage their investments in line with the outcomes of the 2022 Butler-Sloss case, in which we advised the applicants on their successful clarification of the legal duties applying to charitable investment, and the subsequent updated Charity Commission investment guidance. Many charities are also looking at ways to improve their governance to increase diversity among beneficiaries, staff and trustees, to build lived experience into processes, including grant-making, and to take steps to reduce carbon emissions and aim for net zero.