Changes to the Regulation of Excepted and Exempt Charities

(July 2010)

The Charities Act 2006 (the 2006 Act) changes the way that these charities are regulated. The aim is to ultimately create a single registration requirement for all English and Welsh charities, with the exception of:

  • the charitable incorporated organisations (CIOs) (a new corporate form for charities that is not yet available); and
  • certain exempt charities that will have 'principal regulators'.

This guidance explains what progress we expect towards this aim during 2009 and what needs to be done by the charities affected.

Contents
Part A - What are 'Excepted' and 'Exempt' charities?
Part B - Excepted charities
Part C - Exempt charities and their future regulation

PART A - WHAT ARE 'EXCEPTED' AND 'EXEMPT' CHARITIES?

A1. Excepted charities

Excepted charities always have been fully under our supervision. This means that we can require them to provide us with information about their activities and investigate them if we consider that there is cause for concern. They are called excepted charities because they have been excepted from the requirement to register with us either by legislation or an order made by us. Most of these charities are either:

a)connected with churches and chapels belonging to various Christian denominations (see the section The Excepted Church Charity Programme for more detail); or

b) charitable service funds of the armed forces (see the section Armed Forces charities for more detail); or

c) Scout and guide groups (we do not expect any of these groups to have an income greater than £100,000 and consequently they will not be affected by these changes in 2009).

A2. Exempt charities

The Charities Act 1993 (the 1993 Act) makes certain charities exempt from our supervision. These charities:

  • have the same status and tax benefits as other charities in England and Wales and must comply with general charity law.
  • are subject to the jurisdiction of the Courts, but cannot register with us and are outside our monitoring and investigative powers.
  • can access our support powers, for example they can apply to us for orders that will enable them to take an action not otherwise allowed by their governing document.

Apart from a few exceptions, for example foundation and voluntary schools, schedule 2 of the 1993 Act (as amended) defines and lists what institutions are exempt charities for the purposes of that Act. The institutions covered are only exempt charities in so far as they are charities at all - this is particularly relevant to those parts of the schedule that refer to groups of organisations, where only some of which are charities. For example, not all industrial and provident societies are charities. More information about exempt charities and links to some websites that provide information about particular types of exempt charities can be found in our Operational Guidance OG57.

PART B EXCEPTED CHARITIES

B1. What has changed for excepted charities and what plans do we have to bring the change into force?

From 31 January 2009 the part of the Charities Act 2006 that requires excepted charities with an annual income over £100,000 to be registered is in force.

While we realise that it is not practical for the 4,000 to 5,000 charities affected to register immediately we have planned to register them by October 2009. We need to do this because we expect that previously exempt charities will have to apply from late 2009. This is a large task for all concerned, however we have carried out extensive preparatory work with the umbrella bodies of most excepted charities with the intention of making the registration process as straightforward as possible.

Because of this exceptional increase in the volume of work (approximately 60% greater than our normal registration workload) we are seeking to schedule the receipt of these applications in order to continue to provide a good service to all of our customers. We started a registration programme for excepted charities in October 2008 that should enable most of these charities to register by 1 October 2009. For information about what is happening for different groups of these charities please click on the following links:

For excepted charities with an annual income of less than £100,000 the exception from registration has been extended until 2012. This will allow time for a review of the 2006 Act to take place in 2011 and for the recommendations arising from it to be considered. We expect that the review will look at registration thresholds generally.

B2.The Excepted Church Charity Programme

Local church charities:

  • associated with the bodies listed below; and
  • established wholly or mainly for the purpose of public religious worship

are excepted from the requirement to register as charities by The Charities (Exception from Registration) Regulations 1996 as amended.

This means that although the law recognises them as charities they do not have to register.
The relevant bodies are:

Baptist Union
Church in Wales
Church of England
Congregational Federation
Evangelical Fellowship of Congregational Churches
Fellowship of Independent Evangelical Churches (FIEC)
General Assembly of Unitarian and Free Christian Churches
Grace Baptist Trust Corporation
Methodist Conference
Presbyterian Church in Wales (also known as Calvinistic Methodist Church)
Religious Society of Friends
Strict and Particular Baptists
Union of Welsh Independents
United Reformed Church

From 31 January 2009 such charities with an annual income of more than £100,000 must apply for registration unless we issue a written determination to the contrary. We will not issue such a determination unless we are satisfied that a charity's income has only exceeded the registration threshold because of exceptional circumstances, such as the receipt of a substantial grant for a purpose that will not be repeated for the foreseeable future.

This is a large programme of work for all concerned. So, working in conjunction with the churches, we have started the programme of registrations for those that have an income over £100,000. We plan to complete this by 1 October 2009.

You can view the detailed excepted church charity programme, which includes contact details at the umbrella bodies here.

B3. Other groups of churches that have not previously registered

We know of five other groups of churches that were included in excepting regulations made under the Charities Act 1960 but were not included in the excepting regulations made in 1996. These are:

The Office of the Third Sector has agreed that registrations for these churches can be included within the programme for the excepted church charities. However, the income threshold of £100,000 will not apply and they will have to register if their annual income is more than £5,000. We will initially be concentrating on registering charities connected with these bodies where the income exceeds £25,000.

B4. Registered places of worship

Registered places of worship are excepted from registration under the 1993 Act, but the extent of this exception is widely misunderstood. The exception from registration for which the 1993 Act makes provision (and which continues) does not extend to charitable funds held in connection with registered places of worship. It does not apply, therefore, to property held on distinct trusts (such as special trusts for the maintenance or repair of the place of worship, or for the payment of the minister's stipend).

Consequently, if in addition to a registered place of worship, a charity has income of more than £5,000 per year it is normally registerable, unless some other excepting regulation applies.

Therefore:

  • charities connected with all groups of churches not specifically excepted from registration by the 1960 or 1996 excepting legislation; and
  • all wholly independent church charities;

have a duty to apply for registration if their funds exceed the normal registration threshold of £5,000 income per year.


B5. Local Ecumenical Partnerships (LEPs)

LEPs come in a variety of forms, but each represents a situation where more than one Christian denomination is working together under a formal agreement. These agreements are 'sponsored' by a County or City Ecumenical Body that has the responsibility for supporting, encouraging and monitoring them.

LEPs include local churches who share their congregational life, local shared buildings, covenant partnerships within chaplaincies and other situations.

Where one or more of the constituent churches in an LEP are themselves excepted from the requirement to register then the LEP is similarly excepted.

We anticipate that there are about 80 LEPS with incomes sufficient to trigger the registration requirement. We are in regular contact with the various denominational bodies to agree a way forward. Because there are a number of, as yet unresolved issues, applications for registrations for these should not be submitted at this stage. April 2009 is likely to be the earliest start date for this process.

B6. Armed forces charities

Those charities concerned with promoting the efficiency of the armed forces that are affected by the changes in the registration requirement will be registered on a phased basis over 18 months. Registration of Royal Navy, Royal Marines and British Army charitable service funds with an annual income of £100,000 or more started in October 2008. Registration of RAF service funds with an annual income of £100,000 or more will start in 2009.

The registration of affected service funds is being co-ordinated with each of the individual services. Service fund administrators or trustees requiring further information on the registration process and timetable should get in touch with their respective service contact:

Royal Navy and Royal Marines

British Army

Royal Air Force

RN: Fleet Charities Unit
Mail Point 1.3
Leach Building
Whale Island
Portsmouth
PO2 8BY
RM:
RM Corps Secretariat
SA Pensions and Service Funds
DSPS(A)
Worthy Down
Winchester
SO21 2RG
SO2 Service Funds Policy
Hurricane Block
Ground Floor
Headquarters Air Command
Royal Air Force High Wycombe
Buckinghamshire.
HP14 4UE

Unregistered charities that are concerned with promoting the efficiency of the armed forces and are not treated as service funds should contact our Armed Forces Charities Unit to discuss the registration process. (email: AFSETTaunton@charitycommission.gsi.gov.uk; telephone 01823 345472)

B7. Applying for registration

In 2008 we introduced a new facility that enables organisations that are:

  • affiliated to an umbrella body; and
  • have a governing document that we have approved,

to apply for registration using our on-line service.

Almost all the previously excepted charities can take advantage of this service and we strongly recommend that they do so.

The advantages of applying on-line are:

  • The on-line application system allows us to ask only the questions relevant to the organisation and to tailor the questions to the responses made to the earlier questions.
  • We are able to carry out some validation checks on the information as it is entered and can ensure that all required parts of the application are completed. This substantially reduces the need for us to contact applicants with queries.
  • It eliminates clerical errors that can otherwise occur if someone unfamiliar with the organisation enters information into the charity database.
  • Because of these advantages, we aim to provide the majority of organisations with their registered charity number in about a week. This compares with an average turnaround time for paper applications of about a month.

Go to the online registration page.

Once the on-line application has been submitted the system generates a trustee declaration form. This is pre-printed with our reference number and the names of all the trustees. More information about registering charities is available on the Registering a Charity pages of this website.

B8. Completing the trustee declaration

The trustee declaration needs to be signed by all the trustees and the original signature copy needs to be sent to us by post before we can proceed with the registration.

If they want to do so, the trustees can sign the paper declaration before the on-line application is submitted, provided that they keep it and return it stapled to the system generated one. This is because the form the system generates provides key information to enable us to link the paper form with the on-line application.

If you want to adopt this second approach you can download the paper form (CC5c here).

B9. Frequently Asked Questions from excepted charities

The following are questions that have been raised by a number of excepted charities.

We are an excepted charity but want to be a Charitable Incorporated Organisation (CIO). Does this make any difference to the registration requirement?

The CIO will not be available before October 2009. The availability of the CIO structure does not affect the registration requirement is not affected and charities that are liable for compulsory registration must do so. When the CIO becomes available it will be possible to either convert or restructure the existing charity into a CIO form. View more information on CIOs on our website.

All charities that choose to become CIO's will have to register and submit annual information to us whatever their income.

We do not want to use the approved governing document for our denomination/umbrella body can we apply for registration independently and/or use a different governing document?

This depends on your church affiliation. For some churches, including the Church of England, the Methodist Church, the United Reformed Church and the Church in Wales, the governing document is defined by statute law. So you cannot have a different one.
In other cases we have worked with the umbrella body or denomination to agree an approved governing document that both:

  • satisfies the legal requirement; and
  • accords with the theological position and the practices of the church in question.

Those who use the approved governing document, and our on-line method of applying for registration, should find that we handle their application swiftly. We will rarely need to engage in extended correspondence because:

  • your church has not satisfied the legal requirements; or
  • important information is missing from the application.

If you think the approved governing document does not meet your requirements then, in the first instance, you should discuss this with the denomination's umbrella body. They are best placed to advise you whether you can make changes or use a different document.

Our church is an excepted charity and its income is less than £100,000. However, we are frequently asked for our registered charity number and cannot give one. How should we explain why we do not have one, and yet still ensure we can benefit from tax relief?

If your church is affiliated to, or part of a group of churches, that have been excepted from the requirement to register, excepted status will continue until 2012. This is because the Charities (Exception from Registration) (Amendment) Regulations 2007 extended the exception until 1 October 2012. It is possible that the income threshold of £100,000 may be lowered. This would be as a consequence of the review of the Charities Act 2006 due to take place in 2011.

The effect of this legislation is that your church is not required to register and consequently does not have a registered charity number. You can refer to the information on these pages as evidence of this.

Our charity is currently excepted from the requirement to register. Normally our income is nowhere near £100,000 a year but exceptionally we have recently received a legacy that brings our income over the threshold. Do we have to register and then possibly come off the register?

If a charity normally has an income well below that of the excepted charity registration threshold (currently £100,000), but receives a substantial legacy that causes the gross income to exceptionally exceed the threshold, then the charity can apply to us for a written determination. The determination will state that the estimated income for a future year is used as the baseline for assessing whether registration is required. Because the determination is based on the estimate of the likely income in a future year we will not normally give this determination when the general income is steadily increasing and is approaching the £100,000 threshold anyway.

PART C EXEMPT CHARITIES AND THEIR FUTURE REGULATION

C1. How will exempt charities be regulated when the parts of the Charities Act 2006 that specifically apply to them come into force?

Changes to the position of exempt charities were proposed in the 2002 Strategy Unit Report, Private Action, Public Benefit (the SU Report). The report described the current position 'as creating anomalies, confusing for the public and a threat to the integrity of charitable status'. The 2006 Act makes those changes, which are intended to ensure that all organisations with charitable status are subject to the same accountability requirements.

It is now planned that the changes will start to come into force from 1 June 2010 and make exempt charities more accountable in a way consistent with charity law requirements but allowing for two different routes:

  • charities that will have a 'Principal Regulator'; and
  • charities that will be directly monitored and regulated by us.
C2. What will Principal Regulators do?

One of the justifications for exempt charity status was that these charities were supervised by, or accountable to, another body, for example, certain museums and galleries are supervised by the Department for Culture, Media and Sport. To avoid an excessive burden of dual regulation the SU Report proposed that if the supervising body agreed to assess compliance with charity law as part of its usual monitoring processes then it could be appointed as principal regulator for that group of charities. Charities with a principal regulator will not need to register with us.

All principal regulators will have to promote compliance by charity trustees with their legal obligations to control and manage the administration of their charity (This is the same as the compliance objective given to us in the 2006 Act).

This means that they must be able to assess compliance with charity law as part of their usual monitoring processes, using existing forms and reporting mechanisms, adjusted as necessary to include the requirements of charity law. They must have an existing relationship with their charities and knowledge of the relevant sector.

The SU Report also proposed, and the Government accepted, that the reports and accounts of exempt charities should clearly set out the voluntary funds they hold and how they use them and that the same level of information about exempt charities as is required of registered charities should be made accessible on or via our website.

Principal regulators will not have our investigatory and protective powers, but if they have concerns about a charity's compliance with charity law they will be able invite us to investigate and intervene. The 2006 Act extends our investigative and protective powers so that they can apply to exempt charities. Before exercising our powers in relation to an exempt charity we must consult its principal regulator.

It is planned that the following three organisations will start to act as principal regulators from 1 June 2010.

Principal Regulator

Exempt charities to be monitored

Department for Culture Media and Sport Museums and Galleries
Department for the Environment, Food and Rural Affairs Royal Botanic Gardens, Kew
Higher Education and Funding Council for England Universities in England, except for the colleges and halls of the Universities of Oxford, Cambridge and Durham

In addition, we are in discussion with potential principal regulators for:

  • The governing bodies of voluntary and foundation schools in England and Wales
  • Industrial and Provident Societies in England that are Registered Social Landlords (RSLs), and
  • Further Education Corporations in England and Wales..

Until arrangements are finalised, and the necessary changes to the legal framework are implemented, these charities will remain exempt.

C3. What will happen to exempt charities that will not have a principal regulator?

Exempt charities for which no suitable principal regulator can be identified, will lose their exempt status and become excepted. They will fall fully within our supervision, but initially only those charities with an annual income of over £100,000 will have to register (as explained in Part B of this guidance).

In the first phase of changes (starting 1 June 2010), this will include:

  • Universities and other higher educational institutions in Wales.
  • The colleges and halls of the Universities of Cambridge, Durham and Oxford.
  • Student Unions of further and higher educational institutions.
  • Eton and Winchester Colleges.
  • The Museum of London.
  • The Church Commissioners, and the Representative Body of the Church in Wales.

Later phases will include:

  • Charitable industrial and provident societies in England that are not RSLs.
  • All charitable industrial and provident societies in Wales.

We will be working with these charities and/or their representative bodies to prepare for their registration.

C4. When will further changes be introduced?

It is difficult to be precise about the timing for the introduction of further phases of changes to the regulation of exempt charities because it is not within the Commission's control. Some of the regulations that must be made require approval by Parliament and have to be scheduled into the Parliamentary timetable. We cannot make assumptions about the priorities of government or the views of Ministers following a general election.

The next phase of changes is unlikely to be implemented before October 2010 at the earliest. This phase is likely to include only the governing bodies of foundation and voluntary schools, which (as explained above, but subject to further public consultation) we anticipate will remain exempt and have principal regulators. Further changes are unlikely to be implemented before spring 2011. We will update this guidance as further details become available.

C5. What accounting and reporting requirements apply to charities losing their exempt status on 1 June?

Charities that cease to be exempt on 1 June will not have to immediately comply with all the accounting provisions for registered charities. There are transitional provisions in the regulations (The Charities Act 2006 (Commencement no.7, Transitional and Transitory Provisions and Savings) Order 2010; Statutory Instrument 2010 no.503) to allow these charities to complete their current financial year and produce accounts under the accounting provisions that applied to them as exempt charities (section 46(1) and (2) of the Charities Act 1993). In the next financial year the relevant accounting and reporting provisions for an excepted or registered charity (whichever is the case) will apply.

C6. What will happen if a charity is in the process of selling or leasing property, taking a mortgage or involved in charity proceedings when it loses its exempt status?

The regulations (The Charities Act 2006 (Commencement no.7, Transitional and Transitory Provisions and Savings) Order 2010; Statutory Instrument 2010 no.503) include saving provisions for charities losing exempt status. These charities will not have to immediately comply with the additional requirements that apply to registered and excepted charities in cases where the charity had already commenced a disposal or mortgage of charity land or charity legal proceedings before 1 June and which was ongoing at that date:

  • a sale, lease or other disposal of charity land that has been agreed but not completed before 1 June will not have to comply with the requirements of s.36 of the Charities Act 1993;
  • a mortgage over charity land that has been agreed but not executed before 1 June will not have to comply with the requirements of s.38 of the 1993 Act;
  • charity proceedings (legal proceedings concerning charity law or charity administration) that are ongoing on 1 June continue as if they had been authorised by the Commission under s.33 of the 1993 Act.

These saving provisions do not change the trustees’ duty to act in the interests of the charity, properly informing themselves and taking account of all relevant factors when deciding whether to dispose of or mortgage charity land, or undertake legal proceedings.

The 1993 Act requires the legal documents effecting a disposal or mortgage of charity land to make certain statements about compliance with the Act’s provisions. In these circumstances, and following discussions with the Land Registry, we suggest that the documents should certify that:

(a) the land [transferred/charged] is held by or in trust for a charity; and

(b) the charity was an exempt charity at the date the charity proposed to [dispose of/mortgage] the property.

Alternatively, the statement required by rule 180(1)(b) or 180(2)(b) of the Land Registration Rules 2003 can be given, if appropriate.

Charities should always consider appropriate independent advice on the wording of legal documents.

Updated Charities Act Implementation plan

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