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charities act review 2006
The 2006 Charities Act Review is a scheduled review which will both report on its effectiveness after its gradual implementation, and explore the possibility of any further alterations and improvements. The review is to be led by Lord Hodgson of Astley Abbots and is due in summer 2012. The review will consider:
Public confidence in charities
The level of charitable donations
The willingness of individuals to volunteer
The status and effectiveness of the charity commission as a Non-ministerial Department
Current accounting, reporting and audit procedures, including cross-border requirements and reporting
Licensing regime for public charitable collections
Self-regulatory of fundraising activities
We are eager to hear your opinions and views on the Act so if you can spare 10 minutes please complete our questionnaire for your chance to express your concerns and help make charity law in which operates more effectively for small charities: Charites Act Review Questionnaire
the act itself
The 2006 Charities Act is piece of legislation which alters the regulatory framework in which charities operate to make the law more in keeping and effective to charities in the twentieth century. The Act has several different aspects and encompasses changes in charity law that affects both large and small charities.
The key provisions of the Act include:
1. Updating of the definition of a charity
In order to register your organisation as a charity you must demonstrate that your organisation serves a charitable purpose that delivers public benefit. Previously, these fell under the four heads of charity but, as result of the 2006 Charity Act there is a list of 12 charitable purposes under which an organisation can be deemed charitable.
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2. Establishment of the Charity Commission
As a result of the Act the Charity Commission was established as a corporate body with its objectives and functions set out for the first time. In short the Commission would “perform its functions on behalf of the crown”, however it would not be subject to the direction or control of any minster of the crown other government department (apart from legal obligations or expenditure controls).
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3. The establishment of a Charity Tribunal
As a result of the Act, a Charity Tribunal was set up to hear appeals from decisions of the Charity Commission, rather than an appeal having to go to the high court. In 2009, the Charity Tribunal was transferred to the First-Tier Tribunal.
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4. Changes in the registration of charities
As a result of the Act there were some changes in the registration of certain types of charities. If your charity has an annual income lower than £5000 then you are not required to register with the Charity Commission. Small charities, will have the right to voluntary registration once the Charity Commission has registered the large number of formerly exempt and excepted charities. Those charities which prior to the Charities Act 2006 had the status of being either:
Exempt from registration or
An excepted charity with an annual income exceeding £100,000
Now have to register with the Charity Commission. In light of the review in 2012, excepted charities with lower incomes may also have to register.
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5. Accounts and audit procedures for charities
Another consequence of the 2006 Charities Act was certain changes in the thresholds relating to the audit and examination of accounts, these are as follows:
If your charity has a gross income i.e. “the aggregate amount of assets of a charity, before the deduction of liabilities” of more than £500,000 then a professional full statutory audit is required by a registered auditor.
If your charity has a gross income annually that exceeds £250,000 but less than £500,000 then preparation of accruals accounts is required and your accounts have to be examined by a independent examiner as specified in the 1993 Act. However, if your assets are valued in excess of £3.26 million then your accounts will be required to be fully audited by a registered auditor.
Charities with an income over £25,000 but less than £250,000 must send their annual accounts and trustee annual report to the Charity Commission and have their accounts either independently examined or audited by a registered auditor.
Charities whose gross income does not exceed £25,000 do not require any external scrutiny of their accounts of any kind. For more information on requirements for charities auditing and independent examination of accounts can be found on the Charity Commission's website.
6. Charitable Incorporated Organisations
In the future charities will be able to become incorporated (i.e. have a legal identity as an organisation) without having to register as a company. Consequently charities that want a corporate structure to, for example, reduce personal liability of trustees or be a legal body in its own right will be able to do so without having to register as both a charity with the Charity Commission and as a company with Companies House but now instead as a Charitable Incorporated Organisation. This will alleviate the dual regulatory burden on charities.
More details on Charitable Incorporated Organisations can be found here.
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7. New rules concerning Trustees
Due to the Act provisions have been provided to the trustees of charities. Now accordingly:
A trustee may be paid for the professional services provided to their charity over and above their usual duties as trustees, but not under a contract of employment, subject to a duty of care by the trustee board as a whole.
The Charity Commission will be given powers to remove the liability of trustees where they have acted ‘reasonably and in good faith’.
Trustees may use charitable funds to purchase indemnity insurance if they believe it is in the best interests of the charity that they should do so.
For the trustees of smaller unincorporated charities there is now more freedom to act and more power given to be able to alter parts of their governing document and transfer property without prior permission of the Charity Commission.
8. Charitable Fundraising
As a result of the Act all charities regardless of size will have to be more transparent and subject to tighter obligations to demonstrate how much of the money raised will go towards their charitable cause regardless. The act sets out a new licensing scheme for door-to-door and street collections. Now in order for a charity to partake in such charity work they need to obtain a certificate of fitness from the Charity Commission along with a permit from the local authority from where the collection is to take place.
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If you have any views, comments or queries on the 2006 Charities Act please email firstname.lastname@example.org