Lord Hodgson’s Review of the Charities Act

On 16 July, Lord Hodgson published his 160 page Review of the Charities Act 2006, containing 113 recommendations.

Lord Hodgson sets out several principles which have guided his thinking and recommendations, including the principle that the regulatory framework should allow Trustees to use their own judgement, without unnecessary red tape.

The next step is a review by Parliament and then consultation with the sector, before anything changes.

Details of the main recommendations are as follows:

  • Deregulation of disposals and mortgages of charity land - this would mean that charities could treat land as they do any other asset, without the need for the additional requirements of the Charities Act which currently apply;
  • Merger provisions - registration of a merger will pick up all future legacies for the benefit of the merged charity. This should mean that charities would no longer need to keep the old pre-transfer charity in existence as a shell, simply to collect future legacies;
  • Compulsory registration threshold - proposed to be increased from an annual income of £5,000 to £25,000, but registration to be compulsory if claiming gift aid. In addition, voluntary registration (provided it is done on-line) will be open to all charities, regardless of income, which may help smaller charities who need the “badge” of registration to obtain funding. These charities will have the term “small” in front of their charity number;
  • Trustee payment - charities with income of over £1m to have the power to pay their Trustees, subject to clear disclosure requirements;
  • Charging by the Commission - whilst there was no blanket recommendation for charges by the Commission, it is suggested that payment may be appropriate in cases where bespoke advice is sought and obtained;
  • Sanctions for late filing of annual accounts and annual returns – suggested that these should include the withdrawal of gift aid. The Government and the Commission should also give thought to the costs, benefits and logistics of introducing late filing fines;
  • Time limits on serving as a Trustee - Trusteeship should normally be limited in a charity’s constitution to three terms of no more than three years’ service (i.e. nine years in total), and the Commission and umbrella bodies should amend their model constitution documents to reflect this. Any charity which does not include this measure in its constitution should be required to explain the reasons for this in its annual report;
  • Summary Information Return – proposal that this should be abolished, subject to the requirement that all the information it provides is available elsewhere in charities’ annual accounts and annual returns;
  • Audit threshold - the income level at which charities are required to have their annual accounts audited should increase from £500,000 to £1 million. The audit threshold for charities with assets valued at £3,260,000 should be removed completely.

The full report is available here

For further information, please contact charities partner Sarah Morrison on 0207 516 2266 or email smorrison@littlejohnllp.com