Changes to ex gratia payments in the Charities Act 2022
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Hugh James’s Roman Kubiak, Head of Private Wealth Disputes, and Eleanor Evans, Head of Trusts and Estates Administration, consider the changes to ex gratia payments in sections 15 and 16 of the Charities Act 2022.
The Charities Act 2022 has come into force incrementally, having received Royal Assent in February 2022. The last tranche of changes, including sections 15 and 16, are due to be implemented later in 2024.
An ex gratia payment is a payment out of a charity’s funds which a charity may wish to make without having any strict legal obligation to do so. A waiver of a right to receive money or property, or the transfer of charity property other than money, would also constitute ex gratia payments.
Often, this arises in the context of legacies to charities. A third party might claim that they are due money from an estate, for example because the deceased intended to change their will to leave money to them but had died before doing so, or because the third party incurred estate-related expenses which they are not technically entitled to be reimbursed. A charity may decide to make an ex gratia payment if they feel there is a “moral obligation” to do so.
A settlement of a formal legal claim against the estate (e.g. a claim for financial provision under the Inheritance (Provision for Family and Dependants) Act 1975) would not constitute an ex gratia payment.
What is the current law?
Charities usually must seek consent from the Charity Commission to authorise ex gratia payments, to avoid any breach of their obligations to use charity funds to further the charity’s purposes. This can be impractical and restrictive in cases where it is felt there is a moral obligation, and the proposed payment is relatively small.
The Charities Act 2011 introduced the ability for charities to apply to the Charity Commission for permission to make ex gratia payments; such payments having previously required the authority of the court or the Attorney General, as set out in the case of Re Snowden (deceased) [1970] 1 Ch 700.
The Charity Commission’s operational guidance was subsequently amended to state that it would not interfere with de minimis payments under £1,000, as the costs of the Commission considering such matters would likely exceed the values involved.
The power to make ex gratia payments (with or without consent) currently rests with charity trustees and cannot be delegated to charity staff.
Sections 15 and 16 of the Charities Act 2022
Sections 15 and 16 will allow charity trustees to make small ex gratia payments where there is a moral obligation, without referring to the Charity Commission. There is a sliding scale of what is considered “small”, depending on the charity’s gross income in its last financial year.
The thresholds for what will constitute “small payments” are as follows:
Permission from the Charity Commission will still be required for larger ex gratia payments. If desired, charities can restrict or exclude the power to make small payments without Charity Commission consent in their governing documentation.
Charities will still need to report ex gratia payments in their annual accounts.
It will become possible for charity trustees to delegate decision-making power in relation to ex gratia payments to members of charity staff.
The changes should enable small ex gratia payments to be dealt with more efficiently. The ability to delegate to charity staff will reduce the burden on charity trustees, and enable quicker decision-making. Charities will no longer need to spend as much administrative resource on requests to the Charity Commission, or spend time waiting for Charity Commission decisions.
Statutory charities
Statutory charities are charities that are incorporated or governed by a specific Act of Parliament. Under the current law, it is almost impossible for a statutory charity to make an ex gratia payment, as the statutory nature of the rules governing the charities would prevent the Attorney General from being able to authorise payments outside the scope of the relevant statute.
The Act brings statutory charities in line with non-statutory charities, so they will be able to make small ex gratia payments within the thresholds without consent, seeking consent for larger payments.
Why has the implementation of sections 15 and 16 been delayed?
The provisions as originally drafted could have had implications for museums holding collections where there might be considered a moral obligation to return the items to their country of origin. The Department for Digital, Culture, Media and Sport therefore wished to consider the impact upon museums before the sections were implemented.
Lord Parkinson, Minister for Arts & Heritage, wrote to the chairman of the Charity Commission on 31 January 2024, explaining the Department for Digital, Culture, Media and Sport’s position. The government is looking to exclude from the commencement of sections 15 and 16 any ex gratia payment with a recipient outside the UK. This will mean that where a charity is seeking to transfer legal ownership of an object outside the UK via an ex gratia payment, Charity Commission approval will still be required.
Next steps for charities
It would be sensible for charities to ensure they put in place internal procedures for ex gratia payment requests. This might include a framework setting out any delegation by charity trustees of their decision-making powers to charity staff, how such delegation will be supervised, and any parameters regarding the types of request that should be accepted or denied. Charities will want to ensure each request is considered carefully, and that decisions are well documented.
It is hoped that, longer term, there will be many benefits from the increased efficiency the new rules will bring – for charities, the Commission, and those requesting ex gratia payments alike.
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