NHS charities guidance

(February 2012)

Contents

INTRODUCTION
About the Commission's guidance to NHS charities.

A WHAT IS AN 'NHS CHARITY'?
Statement of the characteristics of an NHS charity for the purposes of the Commission's work and of accounting regulations.

B. HISTORY OF NHS CHARITIES AND THEIR TRUSTEESHIP

C. TYPES OF NHS TRUSTEESHIP AND THE GOVERNANCE IMPLICATIONS

D. REGISTERING NHS CHARITIES AND THE USE OF 'MODEL' DOCUMENTS

E. TRANSFERS OF TRUSTEESHIP AND FUNDS UPON REORGANISATION OF NHS SERVICES (FORMAL AND INFORMAL REORGANISATIONS)

F. CLASSIFYING FUNDS (RESTRICTED V UNRESTRICTED AND DESIGNATED) AND REVIEWING STRUCTURES

G. ACCOUNTING/AUDITING FOR NHS CHARITIES: WHAT ARE THE LEGAL REQUIREMENTS?

H. GENERAL PRINCIPLES OF APPROPRIATE SPENDING

I. Sources of further information

Appendices

INTRODUCTION

Who is this guidance for?

This guidance is particularly intended to be useful to those who have a formal or informal role in the management of NHS charities in England and Wales. This includes:

  • members of Trust Boards of NHS bodies (including NHS Foundation Trusts);
  • individual trustees (where bodies of individual trustees have been established by the Secretary of State for Health/Welsh Ministers);
  • employees of Trusts allocated responsibility for day-to-day management of NHS charities or who are given the status of fund advisers/holders; and
  • employees of the NHS charities.

What is the status of this guidance?

This guidance fully replaces the Commission's publication 'NHS Charitable Funds: A guide' (commonly known as 'The Blue Guide' and issued in the mid-1990s). The decision to replace rather than update the Blue Guide took account of two important factors:

  • Much of the guidance contained in the Blue Guide duplicated our general guidance to all charities. The new guidance seeks to signpost to that general guidance where appropriate and to provide NHS-specific guidance where needed. The end of dual accounting, in particular, has limited the areas in which NHS charities are different (and need different advice) from non-NHS charities. The Commission recognises that the interplay of NHS legislation, charity law and the policy role of the Department of Health ('DH')/Welsh Assembly Government ('WAG') in relation to the administration and trusts of NHS charities continues to require a discrete body of guidance to explain and reconcile these different elements.
  • The rapid development of access to the internet has enabled us to provide more instantly accessible guidance that links to other material, both on the Commission's website and the websites of other bodies. It also enables us to issue new or additional guidance quickly in response to any significant changes in the legal framework etc.

We have made every effort to ensure the accuracy of this guidance in terms of the underlying law and of reporting the policies of the Commission and other stakeholders in relation to NHS charities. This has included full consultation with the DH and the WAG. Most of the legislation referred to, which dates from 1988 or later, can be viewed via the UK Legislation website.

'Must' and 'should': what we mean

In this guidance, where we use 'must', we mean it is a specific legal or regulatory requirement affecting trustees or a charity. Trustees must comply with these requirements. To help you easily identify those sections which contain a legal or regulatory requirement we have use the Legal Symbolsymbol next to the short answer in that section.

We use 'should' for items we regard as minimum good practice, but for which there is no specific legal requirement. Trustees should follow the good practice guidance unless there is a good reason not to.

We also offer less formal advice and recommendations that trustees may find helpful in the management of their charity.

What about Welsh NHS charities?

The term NHS is used in this guidance to refer to the NHS throughout England and Wales. We recognise, however, that the NHS in Wales has different governance structures and different accounting and auditing arrangements from the NHS in England. For that reason we have included an extra paragraph ('In Wales ...') in each section where it appears that different arrangements apply. It is important to note that policies adopted by the DH for English NHS charities do not automatically apply to Welsh NHS charities. References to 'the DH' therefore only reflect the position in England. Advice should be sought from the WAG concerning its policies on issues arising from NHS legislation for Wales (see Other useful contacts and guidance).

Who should we contact regarding NHS legislation?

In this guidance we distinguish between:

  • the exercise of statutory powers under NHS legislation (which fall to the Secretary of State for Health/Welsh Ministers respectively); and
  • the day-to-day oversight of, and policies relating to, NHS legislation that affects NHS charities (which fall to the DH/WAG respectively).

In practice trustees, and those who administer NHS charitable funds, should contact the DH/WAG on all issues relating to NHS legislation and the resulting policies (see Other useful contacts and guidance).

What about charities linked to NHS Foundation Trusts?

Although such charities do not fall within the statutory definition of an NHS charity they are dealt with in this guidance. For most purposes the charities are to be dealt with in the same way as those held by other NHS trustees, but where differences apply we have included an extra paragraph ('In the case of NHS Foundation Trust charities …'). In practice the main differences between such charities and other NHS charities relate to the auditing arrangements (see G.2.3).

What if I need further guidance?

Although we have attempted to set out both the principles to be applied and practical examples illustrating that application, we accept that not every circumstance can be addressed in general guidance. If you need more specific guidance, please Contact us.

Can I obtain copies of PDF documents, mentioned in this guidance, in other formats?

Yes. Please Contact us and we can supply you with a Word 2003 version that can be edited.

How should I feedback any 'errors' I find?

We have tried to avoid any typographical errors and to ensure this guidance is clear and accurate. We have also tried to ensure that all the links work. If you identify anything which may be an error Contact us.

A. WHAT IS AN NHS CHARITY?

A.1. The short answer

A.1.1. The working definition employed by the Charity Commission to identify an NHS charity is that:
  • the charity is established for charitable purposes relating to the NHS (please see also statutory remit); and
  • its trustee arrangements have been established by the Secretary of State for Health/Welsh Ministers under NHS legislation; and
  • the individuals responsible for ensuring that trustee duties are fulfilled are appointed by the NHS by one means or another (please see Different categories of trustee).

The Charity Commission, for the purposes of this guidance, has included charities linked to NHS Foundation Trusts in its working definition of NHS charities. At the date of first publication there are now also several Academic Health Science Centres. The former NHS charitable funds of the merged NHS partners of such Centres are included under the working definition of NHS charitable funds for the purposes of this guidance.

A.2. In more detail

A statutory definition of 'NHS charity' appears in the Appendix statutory definition.

A.2.1. Charities not administered by NHS appointed trustees

Charities that aim to support the work of the NHS, but which have trustees who are not appointed through the Secretary of State for Health/Welsh Ministers or the NHS Trust Development Authority, are not NHS charities for the purposes of this guidance eg Hospital Leagues of Friends.

A.2.2. Land and buildings of former charitable voluntary hospitals and other land held by NHS charities
Pre-1948 voluntary hospital sites

Legal Symbol Section 6 of the National Health Service Act 1946 transferred virtually all existing 'voluntary hospitals' to the Minister of Health from the appointed day (5 April 1948) 'free of trusts'. As the health service has developed, the ownership of hospital sites has devolved to local NHS bodies. The effect of s6 was that property previously held on clear charitable trusts for a hospital ceased to be charity property.

If a hospital site is subject to closure and/or sale it is very unlikely that its pre-NHS status as the property of a charity will have any relevance to that closure/sale. Consequently the Charity Commission would not have a role to play in the disposal of such a site and the provisions of s117, 119, 120 and 121 of the Charities Act 2011 (see our publication Sales, leases, transfers or mortgages: What trustees need to know about disposing of charity land (CC28)) would not apply. The Commission would not have any jurisdiction over decisions relating to closure of the hospital.

There have been a few cases in which, at the point of disposal, the NHS body has identified that such a site did not appear to have been transferred in 1948. Where this has been confirmed by the DH the trustee(s) should seek the advice from the Charity Commission (see Contact us). This would also apply to charitable property that first came into use by the NHS after 5 April 1948, but the ownership of which has not been formally transferred from its previous trustees.

Section 6 was re-enacted under s219 and 221 of the National Health Service Act 2006 with effect from 1 March 2006.

If you wish to research the history of a particular hospital you can do so via the National Archives website following the link National Archives Hospital records.

Land acquired by NHS charities since 1948

If an NHS charity has purchased, leased or received a gift of land since 5 July 1948 that land will be held on the trust for the charity concerned. Depending on the documents that gave effect to the transfer of ownership to the charity (and any to declarations of trust made subsequently in relation to that land) it will either:

  • represent 'designated' land (land held on trust for a specified use); or
  • represent permanent endowment of the charity; or
  • represent permanently endowed designated land; or
  • represent an unrestricted asset of the charity, held on trust for its objects.

Land held by NHS charities in any of these ways is subject to the same statutory framework for disposal and mortgaging as other charities ie sections 117-124 of the Charities Act 2011 (see publication Sales, leases, transfers or mortgages: What trustees need to know about disposing of charity land (CC28).

A.2.3. NHS matters not related to charitable funds

Legal Symbol The Charity Commission has no jurisdiction in relation to clinical or other operational matters related to the NHS and will not provide advice or guidance concerning NHS bodies' responsibilities in these areas.

B. HISTORY OF NHS CHARITIES AND THEIR TRUSTEESHIP

B.1. The short answer

The NHS Act 1946 removed pre-existing trusts from property and funds acquired by the National Health Service as a result of the Act. The Act then defined statutory trusts upon which such property and funds were to be held by the different categories of NHS bodies created under that Act.

Various successive NHS Acts have established new categories of NHS body (sometimes replacing, sometimes adding to the previous categories). For each category of NHS body the NHS Acts provided a power to hold funds on trust, but those powers were not identical for all categories. The NHS Acts not only provided for the NHS bodies themselves to hold the trust funds (as corporate trustees) but also provided for bodies of individual trustees to be established. The choice of trustee arrangements has always been reserved to the Secretary of State for Health (and in more recent years to Welsh Ministers in relation to Welsh NHS charities).

In consequence of these varied powers and trustee arrangements NHS charitable funds may be held subject to a variety of different underlying trusts (depending on when and by which type of NHS trustee they were first received. These distinctions are in addition to any restrictions imposed by donors. It is therefore important for trustees to establish a clear picture of the trusts affecting the funds they hold, so as to avoid breaching those trusts.

B.2. In more detail

B.2.1. The statutory remit of NHS Trustees

The expression 'statutory remit' is used in this guidance to indicate the legislative statements of NHS bodies' powers to hold and use trust funds, including funds for charitable purposes. A key factor defining NHS charities is that their objects ultimately derive from NHS legislation (please see Trusts and Trusteeship). For each category of NHS body empowered to hold trust funds the relevant NHS Act has defined a statutory remit. This is the widest scope within which that body can receive and hold funds on trust. This is effectively the 'general purpose' object (sometimes called 'the statutory trusts') for which NHS trustees can receive and hold donations that are entirely unrestricted by donors.

Non charitable trust funds: The statutory remit permits NHS trustees to accept and hold funds on trust for non-charitable purposes (eg a fund for the benefit of a single named patient, which is not charitable because it does not meet the 'public benefit' criterion). In practice the DH discourages NHS trustees from accepting responsibility for non-charitable trust funds (see DH Guidance via Other useful contacts and guidance). If NHS trustees do hold any such funds they must not be held or accounted for as part of the funds of the charities.

B.2.2. The developing framework: Please see Trusts and Trusteeship table showing:
  • the succession of NHS bodies that have been given a statutory remit to hold trust funds;
  • the implications of trust funds moving between trustees with different statutory remits;
  • the development of powers to hold and accept trust funds;
  • how the remits and powers translate into how the trust funds should be classified (restricted/unrestricted).
B.2.3. 'Blending' of general purpose funds received under different statutory remits

Although many of the more recent categories of NHS trustee (eg Acute Hospital Trusts, PCTs, s11 trustees ) have very similar statutory remits, funds held by earlier categories (eg Boards of Governors of Teaching Hospitals, Special Trustees) had narrower remits. This means that some unrestricted funds held by the current trustees in fact represent a mix of funds received under different statutory remits as trusteeship arrangements changed. It is important for NHS trustees to separate out the funds in question, if at all possible, to avoid the risk of applying some of them in breach of trust. Section F.4. suggests possible strategies to reduce the proportion of current funds that are limited in their application (because they were received under a previous statutory remit). The Commission may be able to offer advice or authority where such a restriction is preventing the application of current funds.

C. TYPES OF NHS TRUSTEESHIP AND THE GOVERNANCE IMPLICATIONS

C.1. The short answer

NHS legislation provides for the Secretary of State for Health or Welsh Ministers to appoint trustees to hold NHS charitable trust funds. There are currently three types of corporate trustee in England (two in Wales) and three types of bodies of individual trustees operating within the NHS. The appointed trustees have no power to transfer their responsibilities to another corporate trustee or body of individual trustees, whether internal or external to the NHS.

Where there are bodies of individual trustees in place most of the Commission's generic guidance on the duties and responsibilities of trustees, and good governance will apply to those trustees. In practice, however, the vast majority of NHS trustees are NHS bodies acting as a corporate trustee, rather than bodies of individual trustees. It falls to the Board of such corporate trustees to act on behalf of the corporate trustee in making trustee decisions.

Because the Board is often acting in two capacities (managing the exchequer funds on the one hand, and the charitable funds on the other) there is a risk of failing to make separate decisions for the two types of fund. Good governance arrangements are therefore essential to supporting clear separation of decision making. A failure to separate decision making (and to be able to demonstrate that separation) can lead to breaches of trust in respect of the charitable funds.

It is also important to understand that trustees cannot delegate their duties and responsibilities, including the major decisions relating to the management and use of the charitable funds. What can be delegated is the implementation of trustee decisions, together with the necessary powers for implementation. A clear governance structure is an essential tool to define and control the delegation arrangements, particularly where there is a corporate trustee and many of its delegates are also employees of the NHS body.

C.2. In more detail

C.2.1. Introduction

NHS legislation from the National Health Service Act 1946 onwards has provided for the Minister of Health and his successors to appoint trustees to hold charitable funds. Numerous reorganisations of the NHS have resulted in whole categories of trustees being replaced by new categories. Trusts and trusteeship summarises the changes that have taken place as a result of reorganisations.

The present position is that there is a mixture of corporate trustees and individual trustees.

Legal Symbol The decision as to which model of trusteeship is most appropriate in any locality lies solely with the Secretary of State for Health/Welsh Ministers (see Other useful contacts and guidance). The Charity Commission will therefore not provide advice on the merits of the different models. Guidance on applying for a change from corporate to individual trusteeship can be found in DH Guidance, via Other useful contacts and guidance.

If we are approached by trustees seeking to exercise the powers in the governing document of their charity(ies) or any other mechanism (eg grants) to change the trusteeship away from the trustee(s) appointed by Secretary of State for Health/ Welsh Ministers we will in the first instance refer the trustees to the DH/WAG. If those regulators are willing to provide written agreement to the change of trusteeship we will advise the trustees how to effect the change within the terms of the relevant governing document.

C.2.2. Corporate trustees

The most common trusteeship arrangement is for an NHS body to hold the charitable funds linked to its services (and sometimes to the services of smaller NHS bodies in its locality) in the capacity of a corporate trustee.

The NHS body is created by Statutory Instrument by the Secretary of State for Health/Welsh Ministers in accordance with NHS legislation to manage the exchequer responsibilities of specified health services within a defined area. There are currently three main categories of NHS body that deliver services:

  • NHS Trusts including:
    • Acute hospital trusts;
    • (Partnership) Mental Health Trusts; and
    • Ambulance Trusts.
  • Primary Care Trusts (which may provide community health services and commission other health services for their local population).

These bodies may acquire the status of NHS Foundation Trusts (the third category). That status is conferred by Monitor (see Other useful contacts and guidance). NHS Foundation Trusts are separate bodies from the predecessor NHS bodies (s36(1) NHS Act 2006) but please see C.2.3 in relation to trusteeship.

In addition there are a few Care Trusts. These are existing NHS Trusts and Primary Care Trusts that have been designated using powers under s77 of the NHS Act 2006 (rather than a separate category).

  • Strategic Health Authorities ('SHAs') may hold charitable funds but it has not been DH policy to allocate trusteeship to SHAs (see DH Guidance via Other useful contacts and guidance).
  • There are also 12 Special Health Authorities, some of which hold charitable funds as trustee.

In Wales the NHS bodies that might hold charitable funds are:

  • Local Health Boards; and
  • NHS Trusts all or most of whose hospitals, establishments and facilities are situated in Wales;
C.2.3. Transfers of trusteeship and funds between corporate trustees

The transfer of charitable funds to a new corporate trustee may require a Statutory Instrument made under s213 of the NHS Act 2006 (typically referred to as a 'transfer order') where there is a change or proposed change in:

  • the arrangements for the administration of a hospital or other establishment or facility; or
  • the area of operation or functions of any NHS body (other than an NHS Foundation Trust); and
  • the movement of charitable funds will not automatically mirror the movement of exchequer funds.

There are other arrangements (default transfers) where such an order is not appropriate - please see transfers of trusteeship and funds upon reorganisation.

In the case of NHS Foundation Trusts, the award of Foundation status does not affect the continuity of trusteeship of the charitable funds (see the terms of s36(4) of the NHS Act 2006). The establishment of a s51 body (see C.2.4) is a separate issue, which is dealt with in the same way as the establishment of a s11 body.

C.2.4. Individual trustees

Provision is made in current NHS legislation for three models of individual trusteeship. These are:

  • Special trustees

Provided for under s29 of the NHS Act 1973 (as re-enacted under s 212 of the NHS Act 2006) and established by the Secretary of State for Health/Welsh Ministers These replaced Boards of Governors of some of the larger teaching hospitals and are not connected to special health authorities. In practice such bodies are no longer created and many have been superseded by s11 bodies. The NHS Act 2006, however, provides a framework for a continuing role for special trustees.

  • S11 trustees

S11 relates to s11 of the NHS and Community Care Act 1990. The Act provided for such bodies to be established by the Secretary of State for Health in order to serve the new NHS Trusts (first provided for under the same Act), In Wales the power to create such bodies is now formally also exercisable by Welsh Ministers.

S11 was re-enacted under para 10 of Sched 4 to the NHS Act 2006 but the term s11 has been retained in this guidance for ease of reference.

The creation of such a body of trustees requires a statutory instrument. The transfer to it of charitable funds requires a s213 'transfer order'. It has been DH policy only to create a s11 body where the charitable funds to be held exceed £10m (see DH Guidance, particularly at para 33, via Other useful contacts and guidance). When s11 was first enacted the individual trustees were each appointed by the Secretary of State for Health, but this responsibility now rests with the NHS Trust Development Authority.

  • S51 trustees: these are the equivalent of s11 trustees appointed in relation to NHS Foundation Trusts. S51 relates to s51 of the NHS Act 2006 (which re-enacted s22 of Health and Social Care (Community Health and Standards) Act 2003). When a NHS body with s11 trustees is awarded NHS Foundation Trust status those trustees automatically become the s51 trustees for the NHS Foundation Trust.

Vacancies in any existing S51 body fall to be filled by the NHS Trust Development Authority. (Please see The National Health Service Foundation Trusts (Trust Funds: Appointment of Trustees) Order 2007 S.I. 2007 (No.1766) and The National Health Service Foundation Trusts (Trust Funds: Appointment of Trustees) Amendment Order 2008 S.I. 2008 (No. 1902) which made appointments for the current s51 bodies.)

There is currently a limited number of bodies of individual NHS trustees (approximately 7 per cent of registered NHS charity groups) but, between them, these trustees control a substantially higher percentage of the total assets and income of the NHS charity sector. If there is any doubt about which category of trustee is in place in a particular location (or for particular charitable funds) please contact the DH in the first instance (see Other useful contacts and guidance)

C.2.5. Implications for governance where there is a corporate trustee

Having a corporate trustee raises a number of issues for all those concerned with the administration of the NHS charitable funds. In particular:

(a) Who is/are the trustee/trustees?

Groups of individuals within the administration arrangements for the charitable funds sometimes come to be (wrongly) labelled as the trustees eg

  • the members of the Board of the NHS Trust; or
  • members of a charitable funds committee established for day-to-day management of the funds; or
  • individual fund holders/advisers; or
  • employees of the charities or of the corporate trustee.

There is only a single trustee, namely the NHS body that has been appointed as corporate trustee.

We have produced board guidance directed particularly to:

  • those who serve on boards of NHS bodies that are corporate trustee; and
  • those who may serve on charitable funds committees.

It seeks to put into context the roles of Board members/charitable funds committee members. Others involved in administering the charitable funds of a corporate trustee may find our guidance on NHS charity governance helpful to place their role in context.

(b) The agency of staff in receiving donations

There is sometimes a perception that those who solicit/collect/receive funds from donors within the NHS acquire a trusteeship role in relation to those donations. In particular there is a belief that those individuals can direct or determine the spending of those charitable funds they receive.

Legal Symbol The correct approach, which arises from the statutory basis on which NHS trustees are appointed, is that any donation made by a third party for charitable purposes:

  • in a hospital or other NHS service setting;
  • through an employee of an NHS Trust or PCT in the course of their employment,

falls automatically into the trusteeship of the NHS appointed trustee(s). This is on the proviso that those purposes are within the statutory remit of the current trustee(s).

Employees of the NHS Trust or PCT are not entitled to solicit funds for restricted purposes that they have themselves decided (eg to fund research that they are conducting). If a donor imposes such a restriction it will fall to the trustee(s) to implement the restriction.

Employees may choose to make donations from their net declared earnings. In such cases they are as free as any other donor to impose a restriction on their donation.

In summary, the employees are the trustee's(s') agent when they accept donations from third parties for charitable purposes linked to the NHS body: they cannot themselves impose conditions on the trustee(s).

Accepting or soliciting funds for non-NHS charitable purposes will not result in those funds belonging to the NHS trustee. If employees want to raise funds for other (non-NHS) charitable purposes during the course of their employment, however, they must of course seek proper authority. This is not least because that fund-raising may be in competition with the trustee'(s') fund-raising efforts. An NHS body is also entitled to control what activities take place on its sites and during the paid hours of employment of its employees.

(c) What is the dividing line between the exchequer and 'charitable' spending by the NHS body?

There has been concern over several years that the dual role of statutory service provider and corporate trustee of charitable funds creates a conflict of interest for an NHS body when deciding how to apply the charitable funds. This was further brought into focus by an Inquiry of the Commission which found that one corporate trustee had:

  • transferred substantial charitable funds into the exchequer balances without any clear evidence of how the decision was made; and
  • failed to identify and record what needs the charitable funds were intended to meet when transferred.

That NHS Trust was made to repay a substantial sum to the charitable funds.

The Commission's current policy on charities and public service delivery was published in 2005 and is set out in our publication Charities and Public Service Delivery: An Introduction and Overview (CC37). In very broad terms the Commission's conclusion is that there are often few legally defined boundaries for services that must only be provided and funded directly by the public sector. It is therefore legitimate for charities to consider becoming involved in the delivery of such services provided:

  • a clear charitable purpose is served that falls within the trusts of the charity concerned;
  • the decision is made in the interests of the charity to further its charitable objects; and
  • there is a clear open, and independent process of decision making by the trustee(s) to support the decision to apply charitable funds in this way (including an assessment of how far the public sector body's duty of provision extends).

In summary, for corporate NHS trustees the underlying issue is not that certain types of spending are automatically ruled out with regard to the charitable funds. Instead the issue is that the corporate trustee must be able to demonstrate that, before applying charitable funds towards service delivery, there has been a clear and open decision- making process. That process must be independent of that body's decisions concerning the use of its exchequer funds. Please see also NHS and Independence: indicators and evidence.

The Commission does not suggest that a corporate trustee must necessarily convene separate meetings etc, but it must ensure that charity business is dealt with as separate item or items on Board agendas. The decisions made should be separately recorded within the Board minutes (or as separate minutes) and, ideally, the trustee should retain a record of the basis on which key decisions were taken and not merely the decision itself.

Please see also H.2.5.

(d) How do the roles of the Board, the Charitable Funds Committee, fund holders and the finance function fit together in practice?

An overview of respective roles and responsibilities of those involved in handling NHS charitable funds (eg Trust board, Charitable Fund Committee, Finance Function, fund holders/advisers) can be found in our governance guidance. This does not set out to define specific governance arrangements (eg who meets when and what information passes between different bodies at what intervals) but it is suggested that such arrangements should be built around delivering the links/relationships outlined. It may also influence the internal financial controls to be put into place to ensure accountability for the charitable funds.

C.2.6. Child protection and vulnerable beneficiaries issues (and other trustee disqualifications)

Any charity that deals with vulnerable beneficiaries needs to consider safeguarding (see our guidance Protecting vulnerable beneficiaries) and restrictions on acting as a trustee. If you are a corporate trustee you will need to apply the same principles in relation to your Board members.

D. REGISTERING NHS CHARITIES AND THE USE OF 'MODEL' DOCUMENTS

D.1. The short answer

Because NHS charitable funds are held on statutory trusts there is no doubt that they are charitable: the question of whether they are always used for charitable purposes is separate. On that basis the process of registration of such funds does not include a test of charitable status. In practical terms the registration of these funds is handled by the Commission's Liverpool Operations Division (NHS Specialism) rather than by its Registration Division.

The Commission’s practice, using a power under s12 Charities Act 2011, is to link under a single “linked registration” all the charitable funds administered by a single corporate trustee or body of individual trustees.

The trusteeship of NHS charitable funds is often affected by reorganisations within the NHS (eg the merger or dissolution of the corporate trustee and the transfer of its charitable funds). Section E provides more detail on the how the impact on NHS charitable funds should be dealt with, depending on the particular circumstances.

The Commission has developed a range of 'model' deeds and supplemental deeds to support NHS Trusts in:

  • formalising the establishment of NHS charities (where the charitable funds are held only on statutory trusts or informal trusts, such as those resulting from an appeal)
  • reflecting changes to existing charities resulting from certain forms of NHS reorganisations. In most cases the evidence of the Statutory instruments made by the Secretary of State provides a sufficient basis to calculate the impact on the charities, both in terms of their governing provisions and of how they should appear on the Register of Charities.

D.2. In more detail

D.2.1. Compulsory registration criteria

NHS charities are subject to the same registration criteria as all other charities (see the 'Start up a charity' area on our website), but the process of registration is different (it is considerably reduced). It does not involve the Commission having to decide whether the trusts concerned are charitable. The funds in question are automatically held on charitable trusts if they have been received by NHS trustees for charitable purposes within their statutory remit. If the governing document of the charity follows one of the Commission's models (Models A-D or one of the earlier versions) there is unlikely to be any requirement to revise the governing document as a condition of registration.

If a restricted fund of one of the charities:

  • has income in excess of the registration threshold (£5,000); and
  • is ongoing (eg is not a short-term appeal); and
  • has its own written trusts (including separate purposes from those of the charity in which it has been held),

it is likely to constitute a special trust for the purposes of the Charities Acts and should be registered as a charity in its own right. In practice the Commission would use a linking direction to add this trust to a linked group that includes a reporting charity. If the Trustees and their professional advisers are unsure whether a restricted fund constitutes a registerable charity they should Contact us.

D.2.2. Umbrella/group registrations
(a) History

Model trust deeds

In the early to mid-1990s the Commission conducted a major exercise to ensure that all NHS bodies acting as trustee fulfilled their statutory obligation to register the charitable funds that they held. Many of the charitable funds were governed only by the statutory remit under which they had been received (ie there were no governing documents). The Commission considered that the better management and governance of these funds would result if they were formally regulated by written trusts. It therefore developed and promulgated 'model' trust deeds, enabling written trusts to be declared over the funds (see D.2.3). Several legal cases (particularly one called Attorney General v Mathieson [1907] 2 Ch 283) supported this approach.

One model(originally called the umbrella charity model) was intended to regulate the general purpose charitable funds held by NHS trustees (ie funds held for and applicable to the full statutory remit under which they were received and which were primarily unrestricted).

The second model (the 'special purpose charity' model) was intended to be used where funds were held on narrower trusts ie to regulate existing restricted funds. It could also be used to create new charities where the trustees intended to solicit funds for particular (restricted) purposes. Donations naming those charities (without further restrictions) would be regarded as unrestricted funds of those charities. There is strong evidence that many trustees used this model to put a formal structure around historic 'earmarked' funds ("designated funds" in SORP terms). The effect of this was to declare (narrower) trusts) over unrestricted funds, limiting their use.

Different trustees' decisions on whether to use 'special purpose charities' in managing their charitable funds resulted in two types of NHS group registration: single charity and multiple charities. The implications of this are considered at F.2.2.

The special purpose charity model included a power of amendment extending to the objects. Exercise of that power requires the Commission's prior approval. The Commission will only normally grant approval if:

  • there is evidence that the majority of the funds of the charity were received as unrestricted funds at the point of donation (and an amendment would simply enable the objects to be widened back to the underlying statutory remit applicable to those unrestricted funds). Please see also F.2.2; or
  • it is clear that the funds within the charity were, and are, restricted and that the trusts as originally declared have now failed (cannot be implemented - eg a hospital has closed and the objects were linked to that hospital). The Mathieson decision made it clear that the unwritten trusts could be formalised but not varied by the trustees; or

If the power of amendment does not specifically refer to the Commission's prior approval the trustees must nevertheless approach the Charity Commission for advice. This is because, if a special purpose charity's funds comprise solely or mainly restricted funds, the Mathieson decision would prevent the trustees from taking their own decision to vary the objects. They would need formal authority from the Commission.

The impact of NHS reorganisations on the written trusts of NHS charities governed by model documents:

A reorganisation of NHS services (by Statutory Instruments of the Secretary of State for Health or Welsh Ministers) often means that the objects of NHS charities can no longer be implemented by the trustee(s). This is because a different service provider has been substituted for the one referred to in the objects. The reorganisation may also mean the trusteeship has been amended.

The Commission views the Statutory Instrument(s) as legally sufficient to amend the trusts of the affected charities, and would advise that trustees do not need to take additional steps (using the power of amendment) to reflect a reorganisation. Full details of action required in the event of re-organisation are set out in section E.

Umbrella registrations

A policy decision was taken that the general purposes charities would be recorded as umbrella charities, with special purpose charities being recorded as subsidiary charities. The charities linked to a particular NHS body would be registered together (applying the provisions of what is now s12(2) of the Charities Act 2011 – uniting directions) under a single registration number. The umbrella charity would serve as the main charity on the register (suffix ‘0’). These were known as umbrella registrations.

Group registrations (using a group name and notional charity)

A review of the umbrella registration arrangements suggested that it was not strictly correct to view the general purpose charity as the 'umbrella' or parent to the special purpose charities. Accordingly a new practice was adopted when creating a new registration for NHS charitable funds. All the charities comprising funds that have been allocated to an NHS trustee (or body of trustees) by the Secretary of State for Health/ Welsh Ministers were treated as constituents of a group registration. The group name was recorded under the following formula:

[X NHS Trust] General Purposes Charity and related charities.

All the charities were then registered as 'constituents' (described as subsidiaries on the Register of Charities) of a notional charity bearing the group name. The general purpose charity was usually registered as the first constituent; that charity was also the reporting charity responsible for preparing the annual reports and accounts in accordance with the Charities SORP. The special purpose charities were treated as the linked charities for SORP purposes.

(b) Current practice
Linked registrations

The Commission’s Register now enables charities to be linked under a single registration number without use of an “umbrella” or a group name attributed to a notional group charity. The link is made under s12(2) Charities Act 2011. One of the charities serves as the reporting charity for SORP purposes and the remainder are linked charities for SORP purposes. There is no requirement for a group name (or notional charity under that name) but we can record a group name at the request of the trustee(s).

The Register will continue to contain examples of all three arrangements (umbrella, group and linked registration). The Commission will consider updating individual umbrella and group registrations as and when the charities concerned are affected by NHS reorganisations.

(c) Registering a new linked registration

Reorganisations of services within the NHS inevitably result in transfers of trusteeship of NHS charities between NHS bodies. Where the reorganisation results in an NHS body (that already has a group registration) dissolving and its charitable funds transferring to a new body (which does not have a linked registration) we will 'recycle' the existing group registration as the new linked registration. This minimises the number of actions required to update the Register of Charities. Once we have the required evidence of the change of trusts (see Scenarios in section E) we can:

  • update the details of each charity in the linked registration (this will include updating the governing document text to refer to the relevant statutory instruments and may include the name and objects text); and
  • update the group registration to a linked registration; and
  • update the contact details if required.

Where the reorganisation moves some charitable funds to a newly created NHS body as trustee, or to 'trustees for' that body (without any existing NHS bodies dissolving) it is appropriate to create a new linked registration relating to the new body. The process of transfers (and the impact on the registration of the charities concerned) is explained in more detail in section E.

(d) Registering a charity within a linked registration

Where there is an existing group or linked registration the Commission will only usually require sight of the governing document of any new NHS charity (photocopy or PDF format) as a basis for proceeding to registration. When the governing document is in draft form the trustee(s) should consider whether:

  • The objects appear to reflect the underlying trusts?
  • Is it appears appropriate for the trustees to establish a charity: would a 'designated fund' within the general purpose charity be more appropriate?
  • The administrative clauses correctly reflect the trustee position, eg if there is a corporate trustee have the names of its Board members incorrectly been listed at the start of the Deed (instead of naming the corporate body)?

Subject to these considerations we will (if the deed in question is in force and the charity has income of £5,000 or above):

  • enter the charity on the Register as an additional linked charity of the linked registration;
  • confirm the registration in writing, and record a linking direction under s12(2) of the Charities Act 2011.
D.2.3. The use of model documents to formalise unwritten trusts

The model documents developed in the mid-1990s are still available for use where appropriate and have recently been revised to take account of various legislative and other changes in the intervening period. There are four models available:

If you would like a Word 2003 version of any of these models, which can be edited, please Contact us. Please note this only relates to these NHS charity models and not to other model or standard documents.

E. TRANSFERS OF TRUSTEESHIP AND FUNDS FOLLOWING REORGANISATION OF NHS SERVICES (FORMAL AND INFORMAL REORGANISATIONS)

E.1. The short answer

Neither trustees nor the Commission have power to decide the trusteeship arrangements that will apply following a reorganisation within the NHS that affects the current trustees, eg the merger or dissolution of the corporate trustee. The allocation of trusteeship falls to the Secretary of State for Health or Welsh Ministers. Once that decision has been taken and implemented the Commission will work with the new trustee(s) to consider how this should translate into:

  • the linked registrations (one reporting charity and one or more linked charities sharing the same registration number) that should appear on the Register of Charities
  • how the trusts of charities administered by the new trustee(s) vary from those which applied before the re-organisation and transfer of trusteeship
  • opportunities for rationalisation of the charities and funds 'inherited' by the new trustee(s)

E.2. In more detail

E.2.1. Department of Health/Welsh Ministers' Orders

We suggest that this section is read in conjunction with DH guidance (see Other useful contacts and guidance). In Wales trustees should contact the WAG (see Other useful contacts and guidance).

To give effect to a planned reorganisation of NHS services (and to deal with consequential changes of trusteeship) the Secretary of State for Health/Welsh Ministers make(s) Orders in two stages. A separate Order is sometimes required to effect a transfer of the charitable funds, either in addition to the first two Orders or as a stand-alone Order.

Stage 1 Order(s): Establishment/dissolution/transfers of functions

The first stage of Orders carries out the reorganisation (ie moves responsibility for the services between NHS bodies). This may include a Statutory Instrument to dissolve one body (or several) and to establish its/their successor(s) (or a whole sequence of interconnected Statutory Instruments depending on the complexity of the reorganisation). These Orders can be viewed via the UK Legislation website.

Stage 2 Order(s): Transfer of Staff, Property, and Liabilities ('Default transfers')

Charitable funds are deemed to transfer as part of the overall transfer of property between the NHS bodies where there is a dissolution and all the property and liabilities (following the functions) of the dissolving body(ies) transfer to a single successor. This could include a situation where two NHS bodies merge to become one NHS body. The property and liabilities are transferred using a form of order made by the DH (in England) and known as a '(Transfer of Staff, Property, and Liabilities) Order', made in the name of the dissolving body(ies). Equivalent arrangements apply in Wales.

In the case of NHS Trusts acting as corporate trustee, such transfers are, where the NHS Trust is dissolving, made by order under para. 29 of Schedule 4 to the NHS Act 2006. There are equivalent provisions for PCTs which are dissolving in paragraph 23 of Schedule 3 to the 2006 Act. Additionally, there are powers which provide for the transfer by order of NHS Foundation Trusts' property in certain circumstances under section 54 of the 2006 Act, and under section 57(2) of the 2006 Act where there is a merger of NHS Foundation Trusts with each other or with an NHS trust.

Orders transferring property from dissolving PCTs/NHS trusts are not statutory instruments (see s272(3)(d) and (e) NHS Act 2006) and therefore not laid before Parliament or published on the UK Legislation website. The DH or WAG (see Other useful contacts and guidance) may be able to provide copies of such orders. They can serve as evidence of the change of trusteeship of the charitable funds for the Commission's purposes. It is important that the schedules fully and clearly report the charitable assets and funds held by the dissolving NHS body(ies) as trustee(s) at the point of transfer.

In effect it is accepted that the transfer of charitable funds will 'mirror' the transfer of exchequer funds in circumstances in which the dissolving body held its own charitable funds as corporate trustee.

If an NHS charity directly employs staff (as opposed to paying the NHS body for services provided by employees of that body) a change of trusteeship of the charity may have TUPE implications in relation to such staff. The NHS charities are not incorporated entities and therefore themselves cannot act as the employer. Trustees (as the employers) should consider taking specialist legal advice concerning the transfer of employees between trustees.

Orders made under s213 of National Health Service Act 2006/ s161 National Health Service (Wales) Act 2006:

In certain circumstances the proposed trusteeship arrangements will not default to the allocation of the exchequer funds and assets. It is then necessary for the Secretary of State for Health/ Welsh Ministers to make Statutory Instruments under section 213 of the NHS Act 2006/section 161 of the NHS (Wales) Act 2006 (which together restated section 92 of the NHS Act 1977 and were implemented 1st March 2007). These Orders are made specifically to transfer charitable funds. In England s213 Orders can be made in the following circumstances only, where the Secretary of State for Health has regard to:

(a) a change or proposed change in the arrangements for the administration of a hospital or other establishment or facility;

(b) a change or proposed change in the area or functions of any NHS body other than a Foundation Trust. The particular circumstances that may require such Orders include:

  • only the trusteeship is to be altered (and there is no related reorganisation) eg if trustees are appointed by the SofS under s51 or para 10 of Schedule 4 for example to replace Special Trustees or a corporate trustee (or an existing body of trustees appointed by the Secretary of State for Health under section 51 of or para 10 of Schedule 4 to the 2006 NHS Act).
  • at the point of reorganisation trusteeship of the funds is re-configured in a way that does not mirror the movement of the exchequer funds eg funds are transferred to a new or existing body of trustees appointed by the Secretary of State for Health (eg under section 51 of, or para 10 of Schedule 4 to the 2006 NHS Act for example) rather than to (or between) the new corporate body(ies). The circumstances in (a) and (b) above would need also to apply, however, for a s213 order to be made. If a new trustee body is created under section 51 of, or para 10 of Schedule 4 the order establishing that body will effect the transfer.
  • at the point of reorganisation some of the charitable funds are split away from the bodies undergoing reorganisation to other NHS bodies.
  • the charitable funds were previously held by another NHS body but, following the reorganisation, are to be placed under the trusteeship of the reorganised body(ies) eg following a merger of NHS bodies the aggregate value charitable funds of the new NHS body may exceed the DH threshold for trusteeship (see E.2.3)

Section 213 and 161 orders can be viewed via the UK Legislation website but the schedules to the orders can only be obtained from the DH or WAG (see Other useful contacts)

E.2.2. NHS Foundation Trust status: is there a transfer?

When an NHS Trust is awarded Foundation status there is continuity of trusteeship of the charitable funds and no 'transfer' (see s36(4) and 51(4) of NHS Act 2006). The trust deeds of the charities held by the Trust (or by the s51 trustees if there were trustees appointed by the Secretary of State under para 10 of Schedule 4 to the 2006 Act in place) are likely to need to be updated. If the change of status results in a change of name (typically the inclusion of 'Foundation' in the Trust's name) this can usually be accomplished by supplemental deed. Please see model F (Individual) or model F (Corporate).

E.2.3. Department of Health recommended approach on allocation of trusteeship

The DH's policy (in relation to NHS charities in England) has been to vest trusteeship of all charitable funds in whichever NHS body provides the services to which the funds relate provided that the aggregate value of those funds makes it proportionate for the body to incur the costs of administering them as trustee (see DH Guidance via Other useful links). If the funds are of low value the policy has been for the trusteeship of the funds to be vested in another NHS body or body of trustees in the same geographical area that controls more substantial charitable funds.

Charitable funds held by an NHS body as trustee on behalf of another NHS body ('service provider') are not held as restricted funds (restricted to the benefit of the service provider). They are held as part of the trustee NHS body's general purpose funds. That NHS body is expected to:

  • designate the funds for the other service provider's services; and
  • appoint a couple of representatives from the service provider to serve on the NHS Trust's Charitable Funds Committee.

Due to this policy (combined with there being bodies of trustees appointed by the Secretary of State under the NHS Act) the pattern of trusteeship does not mirror the effect of the service reorganisation in all cases.

E.2.4. Considering and implementing changes of trusteeship resulting from Statutory Instruments/other Orders

This sub-section assumes that:

  • the charitable funds have been allocated by the Secretary of State for Health/Welsh Ministers to the NHS body or bodies which will in future provide the services/facilities for which the charitable funds are held; and
  • that allocation is either a stage 2 default transfer or a formal s213/s161 transfer.

It summarises the options for 'new' (or receiving) NHS trustees following the reorganisation, the steps they need to take and how the trusteeship changes would be reflected on the Register of Charities.
The Commission regards the exercise of the jurisdiction of the Secretary of State/ Welsh Ministers to change trusteeship, by means of Order, as a sufficient legal step to achieve consequential amendments to the trusts of the charities concerned, even if the Order does not expressly provide for those amendments.

Receiving Trustees should consider the scope to restructure the funds they receive before proceeding with the relevant scenario set out below (please see F.3 and F.4 below).

  • A straightforward merger of two or more NHS bodies to create a single new NHS body (see scenario 1).
  • A reorganisation of a single NHS body. Some of its services may be transferred to other NHS bodies and/or new services may be taken on by that body (see scenario 2).
  • A reorganisation in which several NHS bodies remain intact but services may be 'swapped', new bodies may emerge to take on some services and the names of some NHS bodies may change (see scenario 3).
E.2.5. Changing trusteeship where the Secretary of State for Health/Welsh Ministers has/have not allocated trusteeship to the service provider

Subject to the point made at E.1 (the Secretary of State for Health's/Welsh Ministers' prerogative to decide the allocation of trusteeship) the funds can be moved between trustees:

  • using 'grants' and 'transfers' from the charities held by one NHS trustee to another NHS trustee or trustees; or
  • by use of existing amendment and dissolution powers.

Possible scenarios might include the following:

(a) No reorganisation of NHS bodies has taken place as such but, with the Secretary of State for Health's/Welsh Ministers' agreement, a specific service or facility has moved from one body to another. The body holding the charitable funds linked to the service may wish to transfer those funds to the new provider and the latter is happy to accept the funds. The circumstances do not fit the powers for the Secretary of State for Health/Welsh Ministers to make a s213/s161 order but they are willing to agree to the movement of the funds. The suggested process is set out in scenario 4.

(b) A reorganisation has taken place by way of a merger. The bodies that have merged previously had their charitable funds held by various NHS bodies because the funds of each merging body were relatively low in value (see E.2.3.). No s213 orders have been made so the funds remain with the existing trustees. The aggregated total of all the charitable funds of the merging bodies is substantial and the merged body wishes to act as trustee. The existing trustees are willing to transfer the funds and the Secretary of State for Health/Welsh Ministers is/are willing to agree to the movement of the funds. The suggested process is set out in scenario 5.

(c) A reorganisation has taken place by way of a merger. Some of the bodies that have merged previously held their own funds. Others had their charitable funds held by various NHS bodies because they were relatively low in value (see E.2.3). No s213 orders have been made so some of the funds remain with the existing trustees whilst some have moved by default (E.2.1). The aggregated total of all the charitable funds of the merging bodies is substantial and either:

  • the merged body wishes to act as trustee; or
  • the merged body wishes another NHS body, with an established charitable funds infrastructure, to manage charitable funds relating to the merged body's services on its behalf.

The relevant bodies are willing to transfer the funds and the Secretary of State for Health/Welsh Ministers is/are willing to agree to the movement of the funds. The suggested process is set out in scenario 5. (This is scenario 6 for the purposes of G.5.).

(d) The redesignation of an existing trustee body following a change in the status of its associated NHS body. For example a corporate NHS Trust trustee becomes a corporate NHS Foundation Trust trustee or there are trustees appointed for the NHS trust by the SofS under para 10 of Schedule 4 to the 2006 NHS Act and that NHS trust becomes an FT. The suggested process to recognise the change is for the new Trustee (in the case of an NHS Foundation Trust) to use model F (corporate)or the new Trustees (in the case of s51 trustees converting from para 10, schedule 4 trustees) to use model F (individual). This is scenario seven for the purposes of G.5 below.

(e) The form of trusteeship changes with the discontinuation of a corporate trustee and the appointment of trustees by the Secretary of State under the 2006 NHS Act to administer the funds previously solely administered by the corporate trustee. The suggested process to recognise the change is for new Trustees to use Model H(1) (where there is only a single corporate trustee) or Model H(2) (where more than one corporate trustee is to transfer its funds). This is scenario 8 for the purposes of G.5 below.

NB incorporated trustee bodies: If a body of individual trustees has been incorporated under the Charities Acts and the name of the incorporated trustee body will be affected by reorganisation (eg because the name of the NHS body to which the trustees are linked has changed) the trustees should Contact us to arrange a new trustee incorporation certificate.

How soon should we notify the Commission that a change of trusteeship has taken place?

A change to the trusteeship of the charitable funds is a change to the trusts that must be notified to the Commission (this is required under s 35(3) Charities Act 2011). Ideally that notification should be given as soon as possible after the relevant statutory instrument takes effect: there is no period defined in the Charities Act. If the new trustee(s) wish to conduct a rationalisation exercise they should do so before contacting the Commission (to avoid two sets of updates to the Register).

E.2.6. Accounting for transfers

Please see G.5 of this guidance.

E.2.7. The charity mergers register (s305 Charities Act 2011)

Generic guidance on the Mergers register can be found on the Commission's website. One of the functions of the Register is a tool to trace funds passing from charity to charity in order to assist in identifying the proper destination for bequests to named charities that have been dissolved.

Transfers of charitable funds by the Secretary of State for Health/Welsh Ministers: are these 'mergers'?

The transfer of NHS charitable funds between trustees by the Secretary of State for Health/Welsh Ministers may impact on the charities held within existing linked registrations. The Commission does not regard the consequential changes to those charities (change of name, change of objects, regrouping under a different registration number) as being ‘mergers’ within the meaning of s305 of the Charities Act 2011. On that basis these changes will not be recorded on the Register of Mergers. It is important not to confuse the issue of whether there is a ‘merger’ in legal terms with the accounting treatment of the transfer (please see G.5).

Voluntary winding up of NHS charities by their trustees: are these 'mergers'?

Many charitable bequests are made for NHS purposes (including bequests to named hospitals, named wards or service, etc) rather than to named NHS charities. The Commission recognises, however, that fund-raising may encourage more bequests be made to named NHS charities. It also recognises that the strategy set out in F.4 below may result in the 'merger' of many special purpose charities into the linked general purpose charities. On that basis the Commission will consider placing entries on the Register of Mergers when NHS charities are dissolved and their funds passed to other charities.

We would request trustees to consult us about the effect of any step that appears to 'merge' an NHS charity or charities before they proceed to make a Vesting Declaration.

F. CLASSIFYING FUNDS (RESTRICTED V UNRESTRICTED AND DESIGNATED) AND REVIEWING STRUCTURES

F.1. The short answer

It is crucial to the correct management and use of NHS charitable funds that they are correctly classified as either restricted or unrestricted. Once this classification has been completed it is possible to consider how to structure the charities and the funds held by the trustee(s) in a way that:

  • minimises the administrative burden; and
  • maximises the flexibility for the trustee(s) in spending decisions; and
  • reflects, if appropriate, the structure of the services the charitable funds have been given to support.

The Commission supports the principle of trustees aiming to reduce the proportion of the funds they hold that are restricted. It also supports trustees seeking to reduce the number of charities they administer. In addition the Commission supports rationalisation of designated unrestricted funds, where that process will result in more effective support to the services for which they were donated. The guidance below offers specific suggestions and strategies to achieve greater flexibility and reduce administration.

F.2. In more detail

F.2.1. The general position for charities

The terms 'restricted' and 'unrestricted' are contained in the Charities SORP. (see Appendix 3, p 95). What follows is a summarised explanation only.

(a) Restricted Funds are funds which either:

  • must be used for specific purposes (set out by, for example, the donor(s) at the point of donation - including bequests - or by the terms of a public appeal or even by the terms of a grant); or
  • are subject to a restriction on the expenditure of capital (also known as 'permanent endowment' or 'expendable endowment' depending on the exact terms of the restriction).

A particular fund may of course be restricted in both these ways (by purpose and a limit on the ability to spend capital). If it is, and the income is above the registration threshold, the fund may need to be registered (see D.2.1). Trustees who receive a restricted donation or other restricted payment (the income from which will be below the registration threshold) can properly choose to add that sum to the funds of an existing charity provided that:

  • that charity's objects are wider than the restriction; and
  • the restricted funds are accounted for as such within the accounts of the charity.

These legally binding requirements for (or limitations on) use are known as 'trusts' (and fall within the definition of 'trusts' given at s353 of the Charities Act 2011). Funds should only be classified as 'restricted' if they are subject to trusts. Please see (d) in this sub-section.

(b) Unrestricted funds are those funds which are given to a charity (whether solicited or unsolicited) without any restrictions imposed by the particular donor or grant maker. They could include proceeds of an appeal, provided that the trustees have included a disclaimer to the effect that the appeal proceeds may be used for other purposes of the charity in the event that the appeal purposes cannot be fulfilled. Endowment funds, permanent endowment or expendable endowment, are always restricted funds.) Unrestricted funds, therefore, are the funds of a charity that may be spent at the discretion of the trustees, in furtherance of the objects of the charity in which the funds are held, without any distinction between capital and income.

(c) Designated funds

The trustees may exercise their discretion to set aside part of the unrestricted funds of a charity for designated purposes. By way of example a proportion of the funds held within a general research charity may be designated specifically for cancer research.

Designation of funds may also be used where donors have expressed a preference without imposing a 'trust'. Designated funds remain unrestricted since the trustees can remove the designation at any time. These designations, whilst being a perfectly acceptable and common practice, do not themselves create legally separate charities. Designated funds continue to be held ultimately for the overall purpose of the charity in which they are contained. Designated funds should be recorded within the summary of unrestricted funds in a charity's accounts.

Funds given on this basis (of a donor preference falling short of a restriction) are normally to be treated as designated funds for use in relation to a particular ward, department, speciality or service.

(d) Are donors' wishes 'trusts'?

An authoritative commentary on trust law explains the position as follows:

"If a gift in terms absolute is accompanied by a desire, wish, recommendation, hope, or expression of confidence that the donee will use it in a certain way, no trust to that effect will attach to it, unless on the will as a whole, the court comes to the conclusion that a trust was intended."
(Underhill's Law of Trusts and Trustees, 15th edn).

In simple terms this explanation means that the answer to the question is 'no'. A trust does arise from an unequivocal restriction imposed by a donor but it does not arise from a 'desire, wish, recommendation, hope or expression of confidence' that the trustees will use it in a certain way.

In practical and accounting terms the implication is that donations should be presumed to be unrestricted (and not subject to a 'trust') unless the donor places an unequivocal restriction on it eg by saying it 'must be used' or 'can only be used' for a specified purpose or by giving to a specific appeal. For a particular donation to be treated as restricted requires positive evidence of restriction. In most cases trustees should make this classification only where there is written evidence of an intention to restrict eg a will, a letter from a donor, terms of a grant, appeal literature. For appeals please see F.4.4.

F.2.2. The position for NHS Charities

(a) Formalisation of trusts of charitable funds during the mid-late 1990s

As explained in D.2, in the mid-1990s the Commission encouraged NHS trustees to consider formalising the trusts (using 'model' declarations) of the charitable funds that they held.

The declaration of written trusts over funds held did not of itself affect whether the funds concerned were restricted or unrestricted. That classification was determined at the original point of receipt. Donations to NHS trustees without any restriction imposed at the point of donation should be regarded as unrestricted funds held for the statutory remit of the receiving trustee. Trustees have power to designate such funds (please see also (c) of this sub-section).

(b) The two different approaches to the process of formalising the trusts which developed following the publication of the Commission's models were:

  • The single charity approach. Some NHS Trustees opted to establish a single charity with objects reflecting their statutory remit. Within this charity they established designated funds, to which they apportioned some or all of the unrestricted funds of the charity. The designations typically reflected the perceived wishes of donors eg donations made by cancer patients and their families (without formal restrictions) were allocated to a designated Cancer Fund. The trustees may also have held restricted donations within the single charity.
  • The general and special purpose charities approach (multiple charities). Other NHS trustees opted to establish a general purpose charity to hold only those donations which appeared to be expendable for any purposes related to the NHS. All other donations (where it seemed either that donors had imposed a restriction or that the donation should be designated because donors' wishes or intentions were clear) were allocated to special purpose charities. Some trustees opted for broad special purpose charities (eg one per hospital) and others established a greater number to reflect subdivisions of service provision eg one per ward, one per medical condition etc. In some cases several hundred special purpose charities were established.

Under this second approach the unrestricted funds held within the special purpose charity were made subject to a trustee imposed limitation (the declared object). In practice this means that:

  • the funds of such special purpose charity must be applied within the objects declared in the trust deed; BUT
  • the unrestricted funds within the special purpose charity remain ultimately unrestricted for the statutory remit(s) under which they were received. If the charity dissolves the unrestricted funds are released to be available for that/those remit(s);
  • new donations naming the special purpose charity (in the absence of any further donor restriction) should be regarded as unrestricted funds of the charity, as they are subject to the power to dissolve the charity (even if the donor is unaware of the terms of the dissolution clause);
  • any restricted funds within the charity must be applied in accordance with the restriction. If the charity dissolves the restriction will remain intact wherever the funds are transferred;
  • the funds of the 'general purpose charity' are wholly unrestricted.

(c) Designations in the NHS context

As indicated above, designations are created at the discretion of trustees from unrestricted funds of the charity. NHS trustees have the same power as other trustees to create designations from unrestricted funds received with no indication of an intended use.>

In the context of the NHS, however, it is more typically the case that a donation will be received with the donor expressing a 'desire, wish, recommendation, hope or expression of confidence' as to use. In other cases the context of the gift (eg to a particular fund holder/adviser or within a particular setting) gives a strong clue as to a donor's probable wishes. These expressed wishes or contextual clues provide a fairly clear indication/expectation (but not a legal restriction) as to how the donation should be used, if possible and practicable.

NHS trustees should have due regard to these contextual clues/expectations as a basis for creating designations and allocating donations between designated funds. This will enable them to respect the wishes or perceived wishes of donors without, wrongly, classifying such funds as 'restricted'. If it becomes impractical to maintain a particular designation the trustee(s) will be free to reconsider the use of the funds without seeking external authority. Where possible they should consider the spirit of the original donations when redesignating funds.

F.2.3. Historic accumulations of unrestricted fund: are trustees bound to expend them?

The general rule for trustees is that they should expend unrestricted funds within a reasonable period of their receipt. The Commission recognises that, in some cases, trustees hold substantial funds comprising elements of endowment and of unexpended income and capital growth (much of it unrestricted) accumulated over many years. These invested funds provide a relatively stable income stream for the charities. In these circumstances the Commission would not expect trustees to expend the unexpended funds in a short period simply in order to comply with the general rule.

The Commission would expect the trustee(s) to frame suitable reserves policies concerning these funds, however, and to avoid further accumulation of unrestricted income or capital growth. If an urgent need arises for a substantial contribution of capital the trustee(s) should consider applying the historic accumulations before considering a new appeal to fund the contribution.

F.2.4. Can trustees change from a multiple charities approach to a single charity approach?

NHS trustees may feel that:

  • the administration and accounting burden of operating multiple charities is greater than for administering a single charity with designated funds and, where applicable restricted funds; and
  • that changes brought about by reorganisation etc result in substantially more bureaucratic processes where multiple charities are registered than if there is a single charity with designated funds (and, where applicable, restricted funds).

The Commission accepts that trustees are entitled to restructure their charitable funds in order to minimise administrative and other requirements. This is on the basis that, in most cases, it appears the majority of the funds held were originally received as unrestricted funds applicable for the statutory remit(s) of the trustee(s) or its/their predecessors.

F.3. Steps towards restructuring the funds to a single charity approach

F.3.1. Checking the current analysis of the funds

The correct future management of the funds will require a correct classification of the funds between restricted and unrestricted. The Commission would encourage trustees to conduct a one-off exercise to test the current classifications. In particular the trustee(s) should seek to match restricted funds to clear evidence of restriction at the point of receipt. Section 131 of the Charities Act 2011 requires charities' accounting records to be preserved for at least six years, so this is the minimum period of records that should be considered. The statements of account themselves do not constitute primary evidence for classification. In the absence of such evidence the Commission takes the view that the funds in question can properly be reclassified as unrestricted.

If such a reclassification is made the trustee(s) should consider whether it may be appropriate to 'designate' a former restricted fund for the purposes for which it was previously inappropriately treated as restricted (because even where there is no formal restriction, many donations are given to NHS charities with a clearer donor expression of intent than might be the case with donations to a non-NHS charity).

The trustees should also consider a 'cut-off' for past restrictions. Trustees are under a general duty to expend income within a reasonable period after it is received. If the total expenditure of funds within each charity broadly matches the total income (and has done so in most years) it is reasonable for the trustee(s) to make the following working assumptions:

  • income received by the charity more than, say, four years ago has now been spent;
  • the trustee(s) spent all the unrestricted and the restricted income and had regard to any restrictions when they were spending (it/they did not set aside the restricted income, leaving it unspent).

It should therefore follow that the restricted income dating from more than 4 years ago has been spent. In classifying current balances, therefore, it will only be necessary, in terms of looking for restricted funds, to consider:

  • permanent endowment funds, whenever they were created;
  • very substantial restricted funds that have been accounted for separately (where there is clear and continuing evidence of the balances carried forward);
  • restricted donations received within the last four years;

Different trustees may work to a different (shorter) planned turnover of funds from the point of receipt to application (eg within two years or three years) and can substitute that turnover period for the illustrative four-year cycle shown above.

Unrestricted income that has been deliberately accumulated under a defined reserve policy would not be accounted for as restricted.

F.3.2. Actively reducing the proportion of restricted funds held

As restricted funds are subject to legally enforceable trusts, any misapplication of such funds ('breach of trust') could form the basis for action against the trustee(s). It is therefore desirable to minimise the proportion of funds held that are properly classified as restricted. The following practical steps may be taken by trustees to minimise the restricted funds they hold:

  • use of the model receipt (see F.3.4 below) to limit the creation of new restricted funds;
  • spending the restricted funds first, whenever possible eg if charitable funding is requested for a particular project at a named hospital the trustee(s) should apply any funds restricted to that hospital in priority to unrestricted funds available for NHS-wide or Trust-wide purposes;
  • in relation to the permanent endowment funds trustees should consider whether (in the case of funds held on a trust for investment) it would be possible to apply a 'total return' approach to the unapplied returns. This might enable a significant proportion of the 'endowment' to be reclassified as expendable return. This is explained in more detail in our published guidance Endowed charities: a total return approach to investment (OG 83).

Please see also F.4 which deals with options for the release or modification of restrictions that can no longer be fulfilled.

F.3.3. Dissolving the special purpose charities and reallocating funds to the general purpose charity

The model 'special purpose charity' declaration contains a power of dissolution in the following terms:

If it appears to the trustee that the objects no longer provide a suitable and effective method of using the trust fund, the trustee [1. may add the trust fund to the trust fund of the ... (general purpose charity) ... .]

[2. shall in these circumstances, but only so far as the trusts attaching to any particular gift to the charity may permit, hold the trust fund upon trust to apply the income and at its discretion, so far as may be permissible, the capital for any charitable purpose relating to the National Health Service.]

The Commission is willing to accept the following interpretation of the first part of the clause:

'The trustee(s) consider(s) that, because the funds held within the charity have mainly been received as unrestricted funds for NHS and Trust-wide use, the limited objects of the charity no longer provide a suitable and effective method of using the trust fund'

This would allow use of the dissolution power as part of a restructuring exercise.

There were two options in the model clause (as annotated) for the future application of the funds. In practice both options should lead, in the first instance, to a transfer of funds to the general purpose charity. Where the donations held within the dissolving charity were linked to clear wishes of donors (whether expressed or reasonably inferred from the context) the trustees should designate the transferred funds for purposes similar to the objects of the dissolving charity. Any restricted funds previously held within the dissolving charity would remain subject to the restrictions.

F.3.4. Developing practices to ensure correct classification of future donations at point of receipt

Donations and other income are received in many different ways, with donors expressing the terms of their donations using a variety of different formulas. In the case of Appeals, donors may not themselves express the terms of their donation but it is implicit that the donations are restricted by the terms of the Appeal (see F.4.4). It is the responsibility of the trustee(s) to establish a process of receipt of funds that will support the correct classification of the funds they hold (as well as ensuring accountability). Possible elements in the process could include:

Fund-raising/promotional material

Leaflets and other material might be made available to explain the nature and role of the charitable funds, the trustee's(s') priorities for spending and how to donate in the most effective ways (see also Model Receipt and Gift Aid below).

Model procedures for handling donations

All staff who are likely to encounter donors and subsequently handle the donations should have a clear understanding of the way in which the funds should be received and subsequently dealt with. This is important not only to ensure that all donations can be accounted for but also to ensure that the terms of donations are adequately recorded. Procedures could cover such issues as:

  • whether cash donations passed directly to staff are discouraged in favour of more auditable forms of donation.
  • whether there is a single person responsible for receipt within each work area (the fund adviser/holder).
  • whether new funds received are passed to the Finance Function daily or at other intervals.
  • how and in what form donations are to be recorded at the location of their receipt.
  • the 'criteria' (possibly including specific phrases and formulae) for classifying a donation as either restricted or unrestricted.
  • whether there are posters or notices explaining to potential donors the procedure for making a donation.

Further guidance on systems to ensure good accountability and records (from which to base decisions on classification) can be found in Internal Financial Controls for Charities (CC8).

Model receipts

During the 1990s the Commission promulgated a model form of receipt. This remains a useful tool for accountability and classification. One intention of this receipt was to limit the creation of new restricted funds. The updated version of the model receipt can be found on our website.

The receipt includes the wording:

Without imposing any trust it is my wish that my donation should be used to …

This ensures that:

  • The donation would be unrestricted (it is only expressing a 'wish') but
  • The trustee(s) would have a fairly clear indication of how the donation should be designated.

Implicit in the use of the receipt is that it should not be issued in response to a restricted donation. If the trustee(s) can see a difficulty in applying a restricted donation 'to the letter' of the restriction it/they should approach the donor where possible to seek their agreement to the amendment of the restriction.

Gift Aid declarations

Some NHS trustees have incorporated a gift aid declaration into the model receipt. The Commission considers this approach represents good practice in maximising the value of each donation and an effective way to ensure donors are automatically invited to consider gift aid. Further information on gift aid and the preparation of a suitable declaration can be found on the HM Revenue & Customs ('HMRC') website.

In addition to classification of new donations the trustee(s) must ensure the correct classification of income from other sources (and the attribution of expenditure). In particular the trustee(s) must ensure that satisfactory arrangements are in place to deal with apportionment of costs , investment management costs, income from funds held on deposit and apportionment of gains and losses as between the charities and, within each charity, as between the restricted and the unrestricted funds.

F.4. Options where restrictions can no longer be applied

F.4.1. The impact of some NHS legislation on the classification of funds

NHS legislation has included a number of unusual provisions that affect the way in which NHS charitable funds should be classified. In particular, in various instances the legislation has stated that 'trusts' cease to apply when the funds in question pass to the NHS trustee but that the trustee should aim to apply the funds for the former trusts 'so far as (reasonably) practicable'. There is no explicit statement of what happens when it is no longer 'practicable'.

F.4.2. Section 220 National Health Service Act 2006 - implemented from 1 March 2007 (restated s7 NHS Act 1946)

Section 7 of the NHS Act 1946 removed all trusts from charitable funds transferred to the NHS on the 'appointed day' but then went on to state that the trustee(s) should use the funds 'so far as reasonably practicable' for the purposes for which they were held prior to the transfer.

It is the Commission's view that:

  • the expectation for trustees to continue to apply the original trusts 'so far as reasonably practicable' contains an implied power to cease to apply them when they are no longer practicable; and
  • such funds should be classified as restricted until and unless the trustee(s) exercise(s) the implied discretion to redirect the funds. Once that discretion is exercised the funds should be re classified as unrestricted.

F.4.3. Section 218 National Health Service Act 2006, implemented from 1 March 2007, deals with bequests and other private trusts for hospitals. Section 218 restated s91 of the National Health Service Act 1977.

Introduction

Our Operational Guidance OG505 Will cases sets out in detail the key legal principles and how the Commission deals with such cases. S218 NHS Act 2006 represents a limited exception to the general position set out in our Operational Guidance, applicable to some gifts to hospitals.

Explanation of s218 provisions

If a bequest is made simply for the purposes of a particular health service hospital and is in the hands of non NHS trustees the provisions of s218 might apply. Generally bequests for charitable purposes related to the NHS are of two types:

Type 1: An instruction to the executors or trustees to make an outright payment to a named hospital/service (or to the relevant NHS body as trustee). If such bequests include a restriction that cannot be fulfilled, a scheme of the Charity Commission, or other formal authority may be required to amend/remove the restriction. This would be dealt with on cy-près principles.

Type 2: An instruction to the executors or trustees to hold funds, as trustees, for a named hospital/service (or for the relevant NHS body). Section 218 of the National Health Service Act 2006 provides that:

218

(1) Subsection (2) applies where the terms of a trust instrument authorise or require the trustees, whether immediately or in the future, to apply any part of the capital or income of the trust property for the purposes of any health service hospital.

(2) The trust instrument must be construed as authorising or requiring the trustees to apply the trust property to the like extent, and at the like times, for the purpose of making payments, whether of capital or income, to the appropriate hospital authority.

(3) Any sum paid to the appropriate hospital authority must, so far as practicable, be applied by it for the purpose specified in the trust instrument.

(4) 'The appropriate hospital authority' means -

(a) where special trustees are appointed for the hospital, those trustees,
(b) where the hospital is managed by, and trustees have been appointed for, an NHS trust, an NHS foundation trust or Primary Care Trust, the trustees,
(c) where the hospital is managed by an NHS trust, an NHS foundation trust or Primary Care Trust and neither paragraph (a) nor paragraph (b) applies, the NHS trust, NHS foundation trust or Primary Care Trust, and
(d) in any other case, the Strategic Health Authority or Special Health Authority exercising functions of the Secretary of State in respect of the hospital, or the Special Health Authority or Local Health Board exercising functions of the Welsh Ministers in respect of the hospital.

(5) Nothing in this section applies to property transferred under section 24 of the National Health Service Reorganisation Act 1973.

(6) In this section -

'health service hospital' includes such a hospital within the meaning of section 206 of the National Health Service (Wales) Act 2006 (c. 42), and
'special trustees' includes special trustees within the meaning of section 160 of that Act.

The Commission cannot authoritatively interpret a Will: that is the role of the Court. Executors/trustees must therefore make their own judgment as to whether the terms of the Will fall under type 1 or type 2 above and whether s218 applies to the payment of funds across.

It is the Commission's view that:

  • sub-section (1) applies to non-NHS trustees who hold the funds on a continuing trust for the hospital/service (Type 2), rather than subject to an instruction to make an outright payment (Type 1);
  • sub-section (2) effectively enables non-NHS trustees (typically executors) to transfer trusteeship of the funds to the NHS trustees; but
  • sub-section (2) only applies if the hospital in question is still open. If it is closed the executors must instead seek advice/authority from the Charity Commission;
  • the expectation for the NHS trustee(s) who receive funds under s218 to continue to apply the original trusts 'so far as practicable'. Section 218(3) therefore contains an implied discretion to cease to apply them when they are no longer practicable;
  • 'trusts' in this context would include any original requirement only to apply the income, not the capital (permanent endowment); and
  • such funds should be classified as restricted until and unless the trustee(s) exercise(s) the implied discretion to redirect the funds. Once that discretion is exercised the funds should be reclassified as unrestricted.

If s218 applies there is no need for formal authority from the Commission by way of a scheme or otherwise to redirect use of these funds (such an eventuality would normally only arise if the hospital or service in question had already closed at the date that the will was being made or there had been a misdescription of the name of the hospital).

F.4.4. Section 222 of the National Health Service Act 2006 - implemented from 1 March 2007 (Section 222 restated s96A National Health Service Act 1977):

Introduction

In the wider charitable sector appeals are regulated by s63 of the Charities Act 2011. In essence that section says that if the purposes of the appeal cannot be fulfilled the trustees must offer donations back to identifiable donors and apply to the Charity Commission for authority to apply the remainder for other purposes. Even when that authority is given a certain proportion of the ‘unidentified’ donations must be set aside for six months in case donors can demonstrate they have made donations and wish to reclaim them. Appeal funds are undoubtedly to be regarded as restricted because the trustees have no discretion to divert them for other uses. The only exception is if, at the point of first making the appeal, the trustees include a suitable statement. This must clearly indicate that, in the event they cannot deliver the main purpose of the appeal they reserve the right to use the funds for similar charitable purposes. An appeal fund established on that basis is ultimately unrestricted but clearly the trustees should designate the fund for the purposes of the appeal.

In the NHS charitable sector, section 222 of the NHS Act 2006 (see s222 NHS 2006) provides for both:

  • excess funds to an appeal (subsection 7); and
  • insufficient funds being raised (subsection 10).

In both cases the trustee has the default power (unless the appeal trust instrument makes a different provision) to apply the funds held 'for such purposes connected with any of the functions of the [relevant NHS body] as the [trustee] considers appropriate'

but

'where under subsection (7) or (10) above property becomes applicable for purposes other than that for which it was given the [trustee] shall have regard to the desirability of applying the property for a purpose similar to that for which it was given' (subsection 11).

Given these provisions there is little doubt that funds within an appeal made by an NHS Trustee using the power under s222 are restricted at the point of donation but, if the circumstances in sub-section 7 or 10 arise the relevant funds can be treated as unrestricted.

As indicated above, reliance on the statutory power will rely on whether the Appeal has a formal instrument of government and whether the terms of the Appeal explicitly provided for an alternative to the statutory solution in the event of a 'failure' of the original trusts of the Appeal.

F.4.5. Charities Act 2011
Introduction

Many NHS charities were first established under statutory trusts. These not only define the charities' objects but also their trusteeship arrangements and give the Secretary of State for Health/Welsh Ministers a statutory role in relation to allocating trusteeship (see C.2.1). NHS Trustees should therefore Contact us before taking or seeking any action under the provisions of the Charities Acts, which purports:

  • to change the objects beyond a statutory remit; or
  • to change trusteeship arrangements put in place by the Secretary of State for Health/Welsh Ministers.
Small charities (income <£10,000)

Full details of the general statutory provision for:

  • transfer of funds to other charities;
  • amendment of trusts and administrative provisions; and
  • winding up permanent endowment

by resolution of the trustees of small charities. See Small charities on our website.

Schemes (and Orders) for larger charities

Full details of the Commission's powers to make Schemes and Orders to amend trusts are given in OG1 Schemes and Orders and in our publication Changing your Charity's Governing Document (CC36).

G. ACCOUNTING/AUDITING FOR NHS CHARITIES: WHAT ARE THE LEGAL REQUIREMENTS?

G.1. The short answer

Trustees of NHS charities must prepare their accounts within the charity accounting framework, as set out in the SORP. The Audit arrangements for NHS charities (unless the trustee is an NHS Foundation Trust or there are s51 trustees) are different from other charities: the decision on who will conduct the audit (or independent examination) lies with the Audit Commission, not with the trustee(s). In the case of an NHS Foundation Trust or of s51 trustees the choice of auditor lies with the trustee(s).

G.2. In more detail

Introduction

The accounting and auditing framework for NHS charities changed significantly from 1 April 2005. A summary of the former arrangements can be found at Pre-2005 accounting.

NHS charities, in common with all registered charities, are required to prepare their trustees’ annual report and accounts in accordance with Part 8 of the Charities Act 2011 and the regulations made thereunder. Where accounts are prepared on an accruals basis the regulations require the charities’ SORP to be followed.

G.2.1. Example accounts

The Charity Commission has published sample accounts formats, which include illustration of how to report public benefit. These can be accessed through the following link example accounts.

These were prepared jointly with the Health Financial Management Association and the Association of NHS Charities.

G.2.2. Accounting regulations that affect NHS charities

The current accounting regulations which together affect NHS charities can be found on the UK Legislation website. The regulations are in addition to (or in some cases have modified) the specific requirements contained in Part 8 the Charities Act 2011. The relevant regulations for financial years beginning on or after 1 April 2008 are:

Charities (Accounts and Reports) Regulations 2008 (SI 2008 No. 629)

Regulatory Reform (National Health Service Charitable and Non-Charitable Trust Accounts and Audit) Order 2005 (SI 2005 No. 1074) ('the RRA')

NHS trustees have up to 10 months from the end of the financial year to prepare and submit the statement of account. Early filing is recommended.

G.2.3. Consolidation of accounts with those of linked NHS body

Please see NHS charities: independence, guidance and governance on our website.

G.2.4. Audit position

(a) NHS charities except for those administered by NHS Foundation Trusts or trustees for NHS Foundation Trusts

Please see Operational Guidance Charities Accounts and Reports OG15 (including Audit Dispensations) at B4 and para 8.2. on the Commission's website.

The following summary applies to NHS charities as defined by the RRA (with the exception of NHS Foundation Trusts and trustees for NHS Foundation Trusts - please see (b) and (c) of G.2.4)

1. The accounts scrutiny dispensations which the Charity Commission gave to NHS charities under the regulations made under section 43 (annual audit or examination of charity accounts) of the Charities Act 1993, (namely regulation 9(2)(a) of the 1995 Regulations) automatically ceased to have effect in respect of any accounting period beginning on or after 1 April 2004. The Commission no longer has any power to give such dispensations in the case of NHS charities. The RRA specifically amended the 1993 Act to set out the arrangements for audit and independent examination for NHS charities.

2. The accounts of all NHS charities were and continue to be subject to some form of scrutiny, usually an audit. NHS charities must have an audit unless the appointed auditor agrees that an independent examination is appropriate. The audit and independent examination thresholds that apply are set out in our publication Charity Reporting and Accounting: The essentials April 2009 (CC15b).

3. The Accounts of NHS charities in England are required by s98 of the National Health Service Act 1977 (as amended by the RRA) to be audited or examined by a person appointed by the Audit Commission, rather than by the charity trustees (see now s232 and Sched 15 of the NHS Act 2006).

Provision for the Audit Commission appointees to act as auditors of NHS Charities (without the need for an audit dispensation from the Charity Commission – with the exception of Foundation Trusts which are not NHS charities for the purposes of the RRA) is made in s149 of the Charities Act 2011. In practice the Audit Commission will usually appoint the same auditors for the charitable funds as it has appointed in respect of the exchequer funds of the linked NHS body.

The qualifications for appointment are as follows (rather than the qualifications set out in s145 of the Charities Act 2011).

'(5) A person shall not be appointed by the (Audit) Commission as an auditor unless -

(a) he is a member of one or more of the bodies mentioned in subsection (7);
(b) he has such other qualifications as may be approved for the purposes of this section by the Secretary of State; or
(c) he was approved before 1st April 1996 by the Secretary of State under section 13(5) of the Local Government Finance Act 1982, and the approval has not been withdrawn.

(6) A firm shall not be appointed by the (Audit) Commission as an auditor unless each of its members is a member of one or more of the bodies mentioned in subsection (7).

(7) The bodies referred to in subsections (5) and (6) are -

(a) the Institute of Chartered Accountants in England and Wales;
(b) the Institute of Chartered Accountants of Scotland;
(c) the Association of Certified Accountants;
(d) the Chartered Institute of Public Finance and Accountancy;
(e) the Institute of Chartered Accountants in Ireland; and
(f) any other body of accountants established in the United Kingdom and for the time being approved by the Secretary of State for the purposes of this section.'

4. In the case of an English NHS Charity where the option to appoint an examiner exists, it is exercised by the Audit Commission, which can select any person as examiner, but the decision as to whether to have an audit or independent examination (if the income is below the audit threshold) lies with the trustee(s) in consultation with their auditor.

5. In the case of a Welsh National Health Service charity the Auditor General for Wales ('AGW') is the auditor ex officio and the AGW decides on the form of scrutiny which he will conduct. Provision for the Auditor General for Wales to act as auditors of NHS Charities (without the need for an audit dispensation from the Charity Commission - with the exception of Foundation Trusts which are not NHS charities for the purposes of the RRA) is made in section 150 of the Charities Act 2011.

6. Where the appointed auditor to an NHS charity (as defined by the RRA) conducts an independent examination, the wording of the examiner's report is altered by the RRA as consequential changes to the relevant Regulations. In all other respects the examination is conducted in accordance with the Directions and guidance for independent examination issued by the Commission.

7. In the case of an NHS charity (as defined by the RRA) there is nothing corresponding to the default audit provisions in section 149 of the Charities Act 2011, which permits the Audit Commission to appoint an auditor to a charity. Similarly, the related powers under section 155 of the 2011 Act do not apply to NHS charities.

(b) NHS Foundation Trusts

When the RRA modified s43 of the Charities Act 1993 the definitions of 'English/Welsh National Health Service Charity' did not include NHS Foundation Trusts. The arrangements for the appointment of an auditor to an NHS Foundation Trust and for its accounts are set out in paras 23-24 of Sched 7 to the NHS Act 2006. Paragraph 25 of that schedule also provides that the form of the Trust's accounts must be agreed by Monitor but this does not apply to the form of the charities' accounts. Subject to the following points, charities administered by NHS Foundation Trust corporate trustees fall within the same audit and examination regime as all other charities and should refer to booklet Charity Reporting and Accounting: The essentials April 2009 (CC15b).

  • The charities linked to an NHS Foundation Trust fall within the general audit and independent examination regime for charities rather than the NHS charities' specific charity audit regime; and
  • If an NHS Foundation Trust does not comply with the general audit arrangements for charities it will require an audit dispensation from the Charity Commission. In specific terms, if an NHS Foundation Trust wishes to appoint the Audit Commission or the Auditor General Wales (or a District Auditor) to conduct the audit it will normally require an Audit Dispensation from the Charity Commission. This is because such an auditor would generally not fall within the categories listed at s145 of the Charities Act 2011, unless the auditor is also already qualified as a Companies Act auditor.

The Charity Commission and the Audit Commission have agreed that if an NHS Foundation Trust in England seeks an audit dispensation the Charity Commission will grant that dispensation automatically. 'Model' letters have been agreed dealing with:

  • An NHS Foundation Trust's request to the Audit Commission to appoint an auditor/examiner (LETTER 1)
  • the Audit Commission's confirmation of an appointment (LETTER 2);

The wording of these letters can be found at the following link on our website.
and

The Commission has standard wording for the granting of a dispensation (please see our Operational Guidance Charities Accounts and Reports OG15 L2, fifth example (including Audit Dispensations) on the Commission’s website.The wording of these letters can be found at the following link on our website.

(c) The audit position for s22/s51 trustees

Section 149 of the Charities Act 2011 does not include charities administered by trustees appointed for an NHS Foundation Trust under section s22/51 in its definition of ‘English National Health Service charity’ and is therefore not applicable to them. The Charities Act 2011 audit and independent examination therefore applies in the same way as to a Foundation Trust acting as corporate trustee (see G2.4(b)).

What is the position if an NHS Trust with s11 trustees gains Foundation Trust status?

Section 51(4) NHS Act 2006 states that:

  • where an NHS Trust is given an authorisation (by Monitor); and
  • that Trust has in place trustees appointed under paragraph 10 of Schedule 4 to the 2006 Act (previously section 11 of the NHS and Community Care Act 1990),

then the original order establishing and appointing the trustees has effect as an order under this section (s51): the existing s11 trustees automatically become s51 trustees when the Trust becomes a Foundation Trust. The charities they administer no longer fall within the definition of ‘English National Health Service charity’ in s149 of the Charities Act 2011. For accounting and audit purposes the charities are governed by the general provisions in the 2011 Act.

We are advised that in the financial year in which an NHS Trust is granted NHS Foundation Trust status the Audit Commission appointed auditor will remain in position.

G.3. Apportionment of costs between charities and funds

G.3.1. General

It is important to distinguish between a charity and charitable funds within a charity when considering the issue of apportionment of costs. In particular there are different expectations for apportionment between separate charities and restricted funds, on the one hand, and designated funds on the other.

G.3.2. Different types of costs

Whilst direct payments of a grant are readily identifiable against the particular charity or fund, the support costs and governance costs are more often incurred as a single set of costs in relation to all of the charitable funds being managed for operating the whole group registration. Whilst the Charities' SORP requires governance costs to be separately reported, the other support costs must be allocated where possible and/or apportioned across all charitable activities.

G.3.3. The rules for allocating/apportioning support costs are, in summary:
  • There must not be any cross-subsidy between charities eg the running costs of all the charities should not be allocated entirely to the largest income charity within a group registration. Each separate charity should meet its own running costs where those costs are identifiable.
  • Within a charity the costs relating to any restricted charitable funds must be attributed to the particular restricted fund as if it were an individual charity but
  • The trustees should check the terms of any restricted gift, or grant, in case it contains an explicit exclusion to meeting the costs of administering the gift, from the gift itself.

Within a charity the costs relating to any unrestricted charitable funds (that have been organised as 'designations') do not have to be strictly apportioned between the designations. The trustees are entitled to 'cross-subsidise' between designations and/or undesignated unrestricted funds as they see fit. Trustees must try to ensure that the way in which they allocate costs between designated funds is fair and does not unduly prejudice the interests of a particular service or group linked to a particular fund. The Charities' SORP requires the audited accounts (the year-end accounts) fully to apportion support costs across charitable activities.

It is recommended that, where support costs are recharged against charities and funds, this policy and the methodology used are made known to fund advisers and other interested parties as a matter of good practice.

G.3.4. Is there a way to ensure costs are in practice borne by the unrestricted funds?

The SORP requires that support costs must be allocated in the annual accounts across the charitable activities undertaken. Trustees may, however, wish to meet these costs from unrestricted funds. The way to reconcile this is to use the transfers line in the annual accounts to show a transfer from unrestricted funds to restricted funds. This transfer will require an explanation in the notes and should be no greater than the support costs met by the restricted funds.

This approach should keep the 'management accounts' provided in-year to fund advisers consistent with the audited accounts filed with the Commission because the closing balance is the same as the opening balance. If the transfer is not made the opening balance would be lower due to the support costs paid from the restricted funds.

G.3.5. Example

Extract from Statement of Financial Activities for Small Trust Charitable Fund year ended 31 March 20XX

Unres' Funds £000

Res' Funds £000

Total £000

Prior Year £000

Incoming resources

Voluntary income

400

200

600

590

Resources expended

Charitable activities:

Purchase of equipment

400

169

569

440

Medical research

30

30

28

Governance costs

10

10

11

Net incoming resources

(40)

31

(9)

111

Transfers*

(2)

2

-

-

Funds brought forward

161

30

191

80

Funds carried forward

119

63

182

191

*Transfer equates to support cost charged to restricted funds

G.3.6. Calculation of costs

Paragraphs 168-176 of Charities SORP deal with the apportionment of costs and includes suggested bases to use (para 170). The selection of the appropriate methodology to apply is a matter for the trustee. Where there is a group registration, the methodology chosen should apply consistently within the group.

Accounting practice does distinguish between costs that can be allocated directly (because they are wholly related to a particular activity) and costs that are common to two or more activities (and therefore have to be apportioned).

In simple terms if a cost is exclusively linked to a particular charity it must be attributed to that charity.

The Commission accepts that there are certain costs that are shared between charities, where it would be difficult to calculate the exact proportion applicable to a particular charity. For that reason we can accept that these shared costs should be allocated on a pro rata or other appropriate basis. The trustees must identify suitable factors against which a pro rata calculation can be made. Some NHS trustees have linked this to numbers of transactions for each charity whilst others have linked it to 'average balances'. Both of these approaches have some merits but both have weaknesses, eg:

  • some small funds have a lot of activity and their administration costs would be disproportionately high relative to fund size using an activity/transaction basis of calculation;
  • an 'average balance' approach could distort the apportionment of costs unless it factors in regular recalculations of balances and additional recalculation every time there is a significant movement within a fund. A high balance/low activity fund could be unfairly weighted in terms of support costs.

For these reasons the Commission simply advises trustees to adopt reasonable formulae that balance the activity/balance criteria for each element of shared costs, eg payroll, creditor payments, general administration. Clearly the formulae should not require a process of information gathering which of itself creates significant administration costs. Overall the Commission recognises that trustees must start with the tools they have available. At the same time the Commission recognises that IT software and hardware has developed in such a way as to enable more and more accurate monitoring over shorter intervals. If the current arrangements appear imprecise trustees should consider how far new tools could introduce improved monitoring without incurring unacceptable additional administrative cost.

G.4. Apportionment of investment gains and losses between charities and funds

G.4.1. General

The first step is to ensure that the trustee(s) has/have an investment policy for the charity(ies) and that the policy identifies when funds may be held on deposit and when funds may be invested in shares, bonds or other financial instruments.

G.4.2. Shared investment arrangements

NHS charities are now permitted, as are other charities, to enter into 'shared control investments' (please see OG49 A1 at para 2.2). Because many NHS group registrations comprise a number of charities, many NHS trustees have elected to invest the funds of those charities together. Prior to the Trustee Act 2000 this could only be achieved by the creation, under the Charities Acts, of a Common Investment Fund ('CIF'). That CIF was itself a charity and the contributing charities had clearly calculated 'shares' in the CIF. The total costs of administering the shared funds were subtracted from the gross gains or added to the gross losses of the CIF (rather than being apportioned between the contributing charities). It was therefore not difficult to apportion the net gains (or losses) between the contributing charities.

Where charities are using the Trustee Act 2000 power to have shared investments there is no automatic provision for 'shares' in a common investment fund, so the trustee(s) involved must develop an equivalent mechanism. The absence of a CIF also means it is necessary to calculate and apportion costs of investment management.

The particular issue that occurs commonly in the NHS is how to allocate the income, investment management costs and capital gains and losses in managing the charitable funds invested. Although the principles that apply are common to all charities, in the NHS context it is helpful to restate what those rules are and the discretion the trustee(s) enjoy(s).

G.4.3. The allocation rules
  • Restricted funds (whether endowment or income) must have allocated against them the capital gains and losses and investment income associated with their share of the investment return.
  • The income from the investment of endowment (whether expendable or permanent endowment) must be allocated to income for spending. That income allocation may or may not be to a restricted fund depending upon the terms of the endowment.
  • The investment management expenses associated with the investment of endowment (whether expendable or permanent endowment) should be charged against that endowment fund (see SORP para 187).
  • The investment management expenses fairly attributable to the investment of restricted funds should be charged against those funds, unless the terms of the fund explicitly prohibit such a charge.
  • For unrestricted funds, including designated funds, it is wholly at the trustee's(s') discretion as to how the income and investment management costs, and the gains and losses are allocated. There is no legal requirement to allocate any share to designated funds. See also G.4.5.
  • When calculating allocations of both costs and income and investment gains and losses, the calculations should be done on a sufficiently frequent basis to ensure a fair allocation, allowing for transactions taking place in the year. A year-end or infrequent calculation is likely to be inadequate as an approach and any calculation which is less frequent than the updating of the charity's nominal ledger (normally monthly) is unlikely to be sufficient without proper justification.
  • The allocation methodology chosen should be disclosed in the accountancy policies section of the notes to the accounts (SORP para 363).

In practice this means that the trustee(s) must apportion the investment gains/losses (and income and investment management costs) across the charities. The general purpose charity and any special purposes charities within the group will each receive its calculated share of investment income and gains and must bear a calculated share of that charity's investment management costs and of any losses. Each charity (general purpose or special purpose) may have more than one fund within it but only restricted funds within that purpose charity would have a 'right' to calculated shares of the charity's income and gains. By the same token restricted funds within a charity must bear a calculated share of that charity's investment management costs and of any losses. Even where there is only one charity with many funds, the principle remains that only restricted funds receive a calculated share The trustee(s) have full discretion to apportion the remaining gains and losses between unrestricted and designated funds.

Endowment funds (permanent or expendable) must always receive their calculated share of investment gains and losses (and bear a calculated share of investment management costs, per SORP para 187).

G.4.4. Basis of calculation
How often?

The ideal, in common with commercial common investment funds, is for the investment gains/losses to be apportioned daily (or as often as possible). Certainly for corporate trustees the apportionment should not be less than monthly (given that most NHS management accounts are run monthly). Some NHS Trusts apportion annually. It is highly unlikely that this frequency is appropriate because it creates a risk of the gains/losses being allocated unfairly. This because different charities' invested balances may fluctuate considerably during the year.

What elements to include?

Most trustees use fund balances as a key element in calculating the apportionment. Using average balances based on only a couple of figures in an annual cycle can lead to a significant distortion of the apportionment eg a fund with a high balance at the start of the year might only be applied (fully expended) at the end of the year just before the second balance figure is taken.

In addition to setting short intervals for checking balances and calculating investment income, gains/losses for each of these intervals (to be aggregated annually) the trustees should make a recalculation every time there is a significant movement of funds within any of the charities eg a significant donation is received or a large grant is made. The Commission does not provide specific triggers for a recalculation but the trustees could consider adopting either or both of the following triggers:

  • any movement in a particular charity representing more than x% of the previous balance of that charity or
  • any movement in any of the charities representing more than y% of the previous aggregate balance of all the charities.
G.4.5. Designated funds

There is no legal requirement for designated funds to have a calculated share of the investment income, investment management costs, gains/losses. If all the funds of a charity are unrestricted and have been designated the trustee(s) can decide how they want to apportion the gain/losses of that charity between the various designated funds it contains.

It is recommended the approach to allocating investment gains and losses and any investment income and the methodology used is made known to fund advisers and other interested parties as a matter of good practice.

G.5. Accounting for transfers

G.5.1 Introduction

In E.2.4 and E.2.5, a number of scenarios were identified for reflecting changes in trusteeship of NHS charitable funds. The Charity Commission in collaboration with HFMA has developed new guidance on accounting for changes in the trusteeship arrangements for NHS charitable funds. The HFMA guidance addresses each of the eight scenarios considered in sections E.2.4 and E.2.5. To access the HFMA guidance view the PDF.

UK GAAP (standard FRS6) permits two approaches to business combinations, accounting by way of acquisition or by way of merger. The recommended solutions may need to be adapted for your particular circumstances but in preparing the accounts you should keep the prime user in mind. The ASB regard funders and financial supporters as the defining class of user and the proposed solutions are developed with the donor in mind.

Scenario

HFMA Reference

Accounting treatment

1 - E.2.4

1a

A 'transfer' and 'merger'

2 - E.2.4

2a

A 'dissolution' and 'acquisition'

3 - E.2.4

3a

A 'transfer' and 'acquisition'

4 - E.2.5

4a

A 'transfer' and 'acquisition'

5 - E.2.5

5a

A 'dissolution' and an 'acquisition' or if a new charity created a 'merger'

6 - E.2.5

6a

'Income and grant'

7 - E.2.5

7a

A change from corporate trustee is a 'continuation'

8 - E.2.5

8a

A change from corporate trustee to body of independent trustees is a 'dissolution' and 'acquisition'

G.5.2 The basic principles

In acquisition accounting a business normally pays to acquire another business but in the case of charity 'acquisitions' there is a nil consideration. The ASB Statement of principles for financial reporting interpretation for public benefit entities (para 8.13) requires that the net assets (acquired at fair value) be shown as a gain or net losses (acquired at fair value) as a loss in the SOFA.

The gain is shown under voluntary income (with details in the notes) or a loss would be shown as a charge within charitable activities (with details in the notes).

Where an endowment is transferred, the charity paying the endowment across cannot show it as a spend in the SOFA, instead it must always show a one-sided entry as an extra line in the SOFA after 'net incoming / outgoing resources before transfers'.

G.5.3 In-year transfers

Timing is not a problem in acquisition accounting as the recipient only records transactions after the transfer, whereas for merger accounting the recipient will need details of the prior year income, expenditure and balances; and if the charity transferring the funds is not winding up, then the recipient will also need to have details of transactions from the beginning of the year up until the transfer so that it can show the full history in its own SOFA.

H. GENERAL PRINCIPLES OF APPROPRIATE SPENDING

H.1. The short answer

For any expenditure of NHS charitable funds to be 'appropriate' trustees should apply three tests:

  • Is it within the objects of the charity concerned and, if the funds are also restricted, within the terms of that restriction?
  • Is the immediate and direct effect of the spending too far removed from the intended charitable outcome to guarantee that outcome?
  • Does it represent a more effective way of applying available funds than other alternatives that may be in need of funding?

Subject to these tests individual decisions lie with the trustees. In the case of doubt on a particular decision the Commission may offer advice to the trustee(s) but the final decision will remain the responsibility of the trustee(s).

H.2. In more detail

H.2.1. Introduction

All trustees have an underlying duty to ensure that all direct charitable spending is demonstrably 'effective' and efficient in furthering the objects of the charity concerned. The Commission cannot direct the trustee(s) concerning individual decisions but the following outline of factors and principles may be taken into account in reaching a decision on the funding of any request/proposal for expenditure.

An example is offered by way of illustrating how the principles might translate into a decision (a member of staff requesting funding support for an expensive external educational course).

nb There is power for the Commission to provide formal regulatory advice under s110 of the Charities Act 2011. This could permit us to advise on whether a particular piece of spending would be lawful but would not permit us to endorse/support/recommend a specific piece of spending as ‘better’ or ‘worse’ than other spending options.

H.2.2. Factors and principles
(a) Does it fit within the scope of the objects and of any donor-imposed restrictions?

The first and primary issue to be considered in any spending decision is whether the spending is within the scope of the charity's objects. If the particular funds of the charity are subject to one or more restrictions the spending must also comply with those restrictions. Please see H.2.3 for additional comments.

If trustees apply funds outside the scope of a charity's objects they may face personal liability to repay the funds to the charity. This could include situations in which trustees cannot demonstrate clearly that decision to make a payment was based on active consideration of how the payment would further the charity's objects (see Inquiry). In the case of a corporate trustee it will face corporate liability but those who act as its agent in decision making may also face personal liability in some circumstances (please see Board at Q4).

(b) Are there many or few steps between the immediate application of the funds and the intended charitable outcome?

Given that the principal purpose of the NHS is to deliver services to patients, then, in simple terms, the outcomes to be achieved using the charitable funds should always be patient focused. If there are too many steps between a given piece of spending and delivering benefit to patients the justification may begin to be tenuous. This issue is of particular relevance where the spending provides a benefit directly to staff.

(c) The impact and the 'opportunity cost': it may be a way to further the objects but is it the most effective way?

The trustees are bound to consider their established priorities for the use of the charitable funds and what spending may have to be cancelled/postponed/turned down in order to fund the particular proposed piece of spending. They must also have due regard to the 'impact' of the amount they spend (when compared to the impact of alternative spending). See impact for further comments.

(d) Public benefit

To be charitable, spending must demonstrate sufficient public benefit in what it aims to achieve. Patient focused expenditure within the NHS (unless directed mainly towards private patients) will generally meet this public benefit test. It is possible, however, that spending which is several steps removed from direct patient benefit could provide private benefits that outweigh the public benefit.

H.2.3. What do the 'model' NHS general purpose objects mean in terms of the scope for spending?

The Commission's view is that, provided the objects of the charity concerned are close to the statutory remit of the NHS trustee(s) concerned NHS trustees have a very wide scope to apply any unrestricted funds that they hold (donations that are not subject to a 'trust' imposed by the donor -see F.2.1).

The statutory remit is generally along the lines of:

'(2)(c) to accept gifts of property (including property to be held on trust, either for the general or any specific purposes of the NHS trust or for any purposes relating to the health service).

(3) The reference in sub-paragraph (2)(c) to specific purposes of the NHS trust includes a reference to the purposes of a specific hospital or other establishment or facility at or from which services are provided by the NHS trust.'

(Schedule 4, Part 2, para 14(2)(c) of the NHS Act 2006,which defines the remit for NHS Acute Trusts: the equivalent remits for PCTs, s11 and s51 trustees are in similar terms. )

This remit has two clear elements:

  • 'Health service' is defined in s275 of the NHS Act 2006 as the health service established in pursuance of s1 of the NHS Act 1946 and continued under s1(1) of the NHS Act 2006 and NHS (Wales) Act 2006. It is generally agreed that 'purposes relating to the health service' means (and is limited to) services provided by the Secretary of State pursuant to the duty expressed in s1(1) of the NHS Act 2006 and NHS (Wales) Act 2006. NB such purposes are not confined to hospital-related services as many services are now delivered in the community.
  • 'for the general or specific purposes of the NHS Trust'. The Commission has agreed with the DH that the 'purposes' of an NHS Trust/PCT include purposes not limited to the NHS. One example is 'health related functions of local authorities' as defined in s75(8) of the NHS Act 2006. An NHS Trust or a PCT can enter into a partnership with a local authority to provide such services on the authority's behalf under the authority of s75 and using an agreement made under the 'NHS bodies and Local Authorities Partnerships Arrangements Regulations 2000' or any subsequent modification.

nb: this remit (and its interpretation) does not apply to continuing bodies of special trustees. Their remit is stated at s212(5) of the NHS Act 2006. This limits their use of funds to the hospitals for which they have been appointed.

H.2.4. The general purpose charity's objects do not match the statutory remit: how should this be dealt with?

There are two main reasons why a general purpose charity's objects may not match the remit set out above:

  • The charity was established to reflect the remit of previous trustees, which may have been narrower than the current trustee's(s') remit. In particular, special trustees were only permitted to receive and hold funds for the hospitals for which they were appointed. In the circumstances the objects can be widened but the funds received under the different remits must be kept separate and spent within their respective remits. Trustees may wish to consider a similar approach for dealing with funds of limited remit to the approach taken with restricted funds (F.3.1 and F.3.2). Model G provides the basis for a supplemental deed to update the objects. (nb the Commission's prior written approval may be required before the objects can be amended but will normally be given in such circumstances)
  • The objects included the formula 'wholly or mainly for …' (the services of the particular NHS body). This means that the funds can only be applied for NHS services delivered by the NHS body. This is doubly limiting as it prevents both spending elsewhere in the NHS and spending connected with non-NHS activity by the Trust. In the circumstances the objects can be widened. Model G provides the basis for a supplemental deed to update the objects. NB the Commission's prior written approval may be required before the objects can be amended but will normally be given in such circumstances.
H.2.5. What should be paid for from exchequer funds and what can be paid for from charitable funds?

Please see Charities and Public Service Delivery: An Introduction and Overview (CC37) which sets out in full the Commission's policy. Section J is of particular relevance to NHS charities. It will be noted that there is no underlying assumption that charities must not subsidise or replace public services, but clear criteria are set for decision making by trustees if they wish to spend in areas normally/previously paid for from exchequer funds. In terms of establishing the duty of the NHS/Secretary of State for Health to provide services, trustees should have regard to ss 3 and 4 of the NHS Act 2006 and to Sched 1 of that Act.

Clearly, restricted funds must be spent within the boundaries of the restriction. This is most likely to apply with:

  • funds raised by appeals (see F.4.4) and
  • funds received under bequests (see F.4.3).
H.2.6. Should NHS charities make grants or loans to pay for equipment?

It is sometimes argued that trustees should not make a grant to a public body. This is on the basis that there is no guarantee that the funds (or the items purchased with the funds) may not be diverted to other non-charitable purposes of the public body. The Commission’s advice (in addition to the principles set out in our publication Charities and Public Service Delivery (CC37)) is that the trustees of a charity considering support to a public body’s services should seek suitable assurances concerning the ongoing use of the facilities/equipment to be funded before they provide the funds. If they do so there is no reason not to make a grant, rather than some form of loan.

There is always a risk that unforeseen changes (service reorganisation, new medical technology/treatments) will change the position after support is given, but if the trustees made an informed decision in good faith to make a grant they cannot be criticised for having made the grant.

NB: under current VAT arrangements, if a charity purchases medical or laboratory equipment it can claim zero-rated VAT, but the linked NHS body cannot. For that reason trustees should consider managing purchases using the following arrangements:

  • the NHS body identifies the equipment required and seeks a grant from the trustee(s);
  • subject to the considerations set out in H.2.2 - H.2.6, a grant is agreed in principle;
  • the charity places an order, which is accompanied by a specific VAT certificate stating the equipment as for medical use, as purchased using charitable funds and will be donated or loaned to x hospital. The certificate as signed and dated by an officer of the charity;
  • depending on local arrangements the NHS body procurement staff may well act as agent for the charity in this process;
  • the invoices are made out to (and paid by) the charity; and
  • the charity then grants or loans the equipment to the NHS body.

Trustees should seek up-to-date information from HMRC concerning the VAT position where VAT may affect the structuring of any transaction.

If trustees feel that a 'clawback' clause is required (as a condition of the grant) this should probably be in terms of repayment of cash (probably on a reducing basis) rather than in terms of the return of assets (which may have little realisable value and may indeed create a liability).

Trustees must also have a realistic expectation of how funds granted by them will be applied and for how long they will provide a benefit. In particular, the value of any payment for equipment or facilities is likely to have a 'write off' period (because the equipment/facilities will deteriorate or become outdated over a period, to a point at which they are no longer useable). Trustees should ask the NHS body concerned to indicate the expected 'useful lifetime' of the equipment/facilities (as well as the benefits to patients). This information should help the trustee(s) to reach a 'value for money' judgment on the particular funding request.

The Commission has no expectation that trustees must retain ownership of property or equipment funded from charitable funds, particularly where this would result in ongoing liabilities (and where the trustees may not have the relevant expertise to manage those liabilities). Retaining ownership could imply:

  • legal 'loan' contracts; and
  • having (or paying for) technical knowledge of what to do if problems arose with the equipment/facilities; and
  • knowing what to do when the equipment needs to be decommissioned (which, in some cases, may have a substantial cost implication).

Together these would probably represent an unnecessary administrative burden for the charity. Provided the original decision was well informed and the trustee(s) had secured satisfactory reassurances, an outright grant would be acceptable.

H.2.7. Use of funds to benefit staff
(a) Overview

NHS charitable funds have been received by successive types of NHS trustee under different statutory remits, but these remits have always included 'purposes of the health service' (see H.2.3). In charitable terms those purposes translate to the prevention or relief of sickness, disease or human suffering of patients served by the NHS. The Commission accepts that, so long as a direct benefit to staff translates demonstrably to relief of sickness of NHS patients, it is a legitimate use of the unrestricted NHS charitable funds to provide such a benefit. Such payments would be legitimate whether or not the objects of the particular charity explicitly mention benefits to staff.

This argument does not necessarily apply where funds are subject to any formal restrictions imposed by donors that specify direct patient benefit. If the objects of a particular charity (or a restriction linked to a restricted gift) are couched in more specific terms eg 'to provide x equipment' or 'to provide additional comforts to patients on y ward' then payments directed to staff benefit would be difficult to justify.

(b) Specific forms of staff benefit
  • Recreational facilities for staff: An object of providing a recreational facility for the employees of a named NHS Trust would not be charitable because the staff would not constitute a ‘public’ class of individuals. If, however, the object of the charity concerned is the standard ‘any charitable purposes relating to the NHS’ formula, the trustees might legitimately decide to make such recreational provision on the justification that healthier/fitter staff are better staff, will provide improved care to patients. If the charity has amongst its unrestricted funds a designated fund for staff recreation this would not be improper.
  • Christmas parties and other social functions: The Commission is regularly asked to advise on whether spending on such functions is 'legitimate' and appropriate. Generally the justification offered is that such functions improve staff morale (leading to better care of patients). We simply advise trustees to consider whether it is justifiable to infer patient benefit from what is being funded and to consider whether other spending could achieve a more direct patient benefit.

In practice, starting from the premise that benefits to staff can translate to benefit to patients (and that the underlying presumption is that such indirect provision is therefore charitable) the onus is on the trustee(s) to evaluate how far a given type of staff benefit does actually translate into patient benefit (please see H.2.2(b)).


(c) What if the funds were given with the intention of providing staff benefits?

Many unrestricted donations that are held within the 'general purpose' charities are given with a clear indication of the donors' wishes/intentions/desires and are designated accordingly. It is fairly common that 'staff' funds are established on this basis because many grateful patients want to express their gratitude through a gift to benefit those who have treated them. For the avoidance of doubt these funds are not subject to a trust for the benefit of staff and represent unrestricted funds. Provided that such 'staff' funds are used in ways that can support staff in continuing to provide good service this would be a legitimate application of those funds.

(d) Tax implications of providing benefits to staff

The Commission does not advise trustees on tax matters, but must draw attention to HMRC treatment of 'staff benefits' provided from NHS Charitable Funds. HMRC will only disallow a fairly small sum before beginning to tax the individuals who receive the benefits. In essence they view such donations made to thank staff (which are typically paid into the charitable funds and then used to benefit staff in various ways) as 'tips' (which are taxed in other professions). The fact that certain types of staff benefit may place a tax liability on the staff concerned should be taken into account by trustees when determining how to spend the funds.

H.2.8. Liability and insurances

Section 185 of the Charities Act 2011provides a statutory power for trustees to pay for Trustee Indemnity Insurance from charitable funds.In the NHS context, however, this power is really only exercisable by and for individual trustees (special, s11 and s51 trustees). It is not appropriate, for example, to seek to purchase such insurance for members of boards of NHS bodies that act as corporate trustee to charitable funds. Any Board members concerned about their personal liability position in relation to their management of charitable funds should seek advice from their Trust concerning the indemnities that apply.

Where such insurance is purchased for members of a body of individual trustees and is in respect of a group registration containing several charities the Charity Commission is satisfied that the trustees can properly elect to pay the premium from the unrestricted funds of the general purpose charity rather than apportioning the costs across the various charities (see G.3).

It should not be assumed that liabilities relating to NHS charities are covered by NHS meeting liabilities, eg those arising from s69 of the National Health Service Act 2006. If NHS charities wish to engage in activities that may create a public liability (such as fund-raising events or clinical trials related to research) the trustee(s) must check with the DH/WAG (see Other useful contacts and guidance) whether or not they can rely on the statutory schemes for meeting public liabilities to third parties for NHS bodies. Similar checks should be made in respect of employer's liability insurance if NHS charities directly employ staff, rather than seconding them from an NHS body. If responsibility/liabilities fall to the charities, the payment of reasonable insurance premiums is a legitimate cost. The Commission's general guidance on Charities and Insurance (CC49) can be found on our website.

H.2.9. Charitable purposes abroad

The Commission regularly encounters situations in which charities react spontaneously to disasters or emergencies outside the United Kingdom that, on a strict interpretation, fall outside the objects of the particular charity. They may do this by launching (or taking responsibility for) an appeal to help those affected by the disaster. Sometimes there is no disaster to trigger an appeal but there is a wish to create a partnership project with a community or institution outside the United Kingdom for mutual charitable benefit. In some cases the aims of the appeal/project are so distinct from the objects of the charity that we advise that a new and separate charity may have been created by the appeal/project and should be accounted for (and possibly registered) separately. In many cases this does not present a problem as such funds are received and fully expended within a short period. It is nevertheless important to ensure that there are adequate accounting records covering the receipt and expenditure of such funds and those who have acted as trustees will need to retain those records for the statutory period (six years).

In the case of NHS charities, the registered charitable funds' objects normally are confined to charitable purposes linked to the NHS or to specific or general purposes of a specific NHS body. The Commission is prepared to take a pragmatic view of a decision of the trustee's(s') that supporting the provision of emergency medical treatment/equipment or other forms of assistance in an area outside the United Kingdom might fall within these objects. There is a reasonable argument to be made that such activity provides indirect, but nevertheless important staff training/development/morale benefits to staff of the NHS Trust, eg funding staff to go to another country as 'volunteers' on the basis that they will learn to provide primary care in a very different environment (whilst ‘making a difference’ to a deprived community, or to people, coping with a disaster may both develop and motivate those staff).

Supporting staff of overseas medical institutions to spend a period in the United Kingdom working in the NHS body might also be justified on the basis of what their presence will contribute to the training and development of those with whom they work. It might also be appropriate for charitable funds to be used to pass on equipment being replaced by the local NHS Trust since this may help the Trust to deal effectively with decommissioning issues. Charitable purposes of the NHS might be furthered by these means.

On that basis it would be legitimate to apply some existing funds from the general purpose charity (typically with objects concerned with promotion of any charitable purposes connected with the National Health Service) towards a response to an emergency/disaster outside the United Kingdom or projects with identified staff training/development benefits. Clearly this needs to be within certain boundaries (eg fully expending the general purpose fund on a projects abroad would be hard to justify where there are needs to be addressed within the hospital(s) or services of the NHS body). The trustees must also have regard to the principles set out in H.2.2 above.

If funds are set aside from the existing funds of the general purpose charity for a particular project we suggest that they be accounted for as being designated. The trustee(s) might wish to include a note to the accounts that explains why a payment was felt to be appropriate.

If a fund has resulted from an appeal, appears to fit within the object (on the basis indicated above) and is short term it should be accounted for as a restricted fund within the general purpose fund, with a note to explain how and why the trustee(s) came to take responsibility for the appeal. If the fund is intended to be ongoing, however, the trustee(s) should consider establishing it as a separate charity (either inside or outside the group registration of the NHS charities depending on whether a link to NHS charitable purposes can be demonstrated).

Although the Commission is prepared to take a pragmatic view of trustees agreeing to take on such an appeal fund/contribute to such a project, our advice is that it would be preferable to treat it as a separate block of funds from the outset. It is clearly desirable to facilitate the goodwill of staff in such situations but this can be achieved by finding another charity or charities through which they can direct their effort.

H.2.10. Research

The principles set out in Research by Higher Education Institutions should be applied by NHS trustees when considering whether to fund research or to accept funding in order to conduct research. For queries not covered by these principles trustees can Contact us.

I. Sources of further information

I.1 Contact us

Contact us by email:

  • for general queries about NHS charities
  • to send material we have asked you to prepare

Please make sure you include the words 'NHS charity' in your email subject.

I.2 Other useful contacts and guidance

Department of Health (NHS charities in England)

Paul Whitbourn
Group Operations and Assurance Directorate.
Room 218 Richmond House
79 Whitehall
London SW1A 2NS

Tel:0207 210 5469
Email: paul.whitbourn@dh.gsi.gov.uk

The National Assembly for Wales (NHS charities in Wales)

John Evans
Resources Directorate/Y Gyfarwyddiaeth Adnoddau
Department for Health and Social Services/Adran Iechyd a Gwasanaethau Cymdeithasol
Welsh Assembly Government/Llywodraeth Cynulliad Cymru
Tel/Ffôn: (029) 2082 3518

Email/E-bost: John.Evans@wales.gsi.gov.uk

NHS Trust Development Authority

NHS TDA
Southside
105 Victoria Street
London SW1E 6QT
Tel: 0207 932 1980
Website: www.ntda.nhs.uk
Email: public.appointments@nhs.net

Monitor:

Independent Regulator of NHS Foundation Trusts
4 Matthew Parker Street
London
SW1H 9NL
Switchboard: 020 7340 2400
Fax: 020 7340 2401
Email: enquiries@monitor-nhsft.gov.uk
Website: www.monitor-nhsft.gov.uk

Care Quality Commission,

National Correspondence
Citygate
Gallowgate
Newcastle upon Tyne
NE1 4PA

Tel: 03000 616161
Email: enquiries@cqc.org.uk
Website: www.cqc.org.uk

Healthcare Financial Management Association

Carole Sales (Committees Manager)
HFMA
32 Albert House
111 Victoria Street
Bristol
BS1 6AX
Tel: 0117 929 4789
Email: info@hfma.org.uk
Website: www.hfma.org.uk

Association of NHS Charities

Association of NHS Charities
Lake View House
Wilton Drive
Tournament Fields
Warwick
CV34 6RG

Tel: 08454 635328
Email: info@assoc-nhs-charities.org.uk
Website: www.assoc-nhs-charities.org.uk

Foundation Trust Network:

Foundation Trust Network
NHS Confederation
29 Bressenden Place
London
SW1E 5DD
Tel: 020 7074 3245
Email: nana.asare@nhsconfed.org
Website: www.nhsconfed.org (hosted by NHS Confederation)

Other 'governance' guidance:

The NHS Trust Development Authority published guidance ‘Governing the NHS: A guide for NHS Boards’ in 2003 which is available through the DH website.

Generic guidance on best practice in governance (include the ‘code’ of good governance) within the voluntary and community sector can be found on the NCVO website. That guidance is of more direct application to bodies of individual NHS trustees.

HFMA publish 'NHS Charitable Funds: a practical guide' and there is also a section on charitable funds in the HFMA publication 'Introductory Guide NHS Finance in the UK'.

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