Changes to the Regulation of Excepted and Exempt Charities

(August 2011)

The Charities Act 2006 (the 2006 Act) changes the way that excepted and exempt charities are regulated. We aim to move towards a single registration requirement for all English and Welsh charities, except for:

  • charitable incorporated organisations (CIOs) (a new corporate form for charities that is not yet available)
  • exempt charities that have 'principal regulators'

This guidance explains the changes that began in 2009 and are currently ongoing, and what the charities affected need to do.

Contents

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

A1. Excepted charities

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

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

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

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

A2. Exempt charities

The Charities Act 1993 (the 1993 Act) makes certain charities exempt from our supervision. These charities cannot register with us and are outside our monitoring and investigative power, but:

  • have the same status and tax benefits as other charities in England and Wales and must comply with general charity law.
  • are subject to the jurisdiction of the Courts .
  • can ask us to exercise our support powers when necessary, for example to authorise an action not otherwise allowed by their governing document.

Apart from a few exceptions (for example common investment funds including only exempt charities) schedule 2 of the 1993 Act (as amended) defines and lists what institutions are exempt charities for the purposes of that Act. The institutions listed are only exempt charities in so far as they are charities at all. (For example, not all industrial and provident societies are charities.) For more information about exempt charities, see our guidance Exempt Charities (CC23).

PART B EXCEPTED CHARITIES

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

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

We have been working closely with the umbrella bodies of most excepted charities to make the registration process for these organisations as straightforward as possible.

For information about what is happening for different groups of these charities please click on the following links:

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

B2.The Excepted Church Charity Programme

Local church charities:

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

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

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

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

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

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

B3. Other groups of churches that have not previously registered

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

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

B4. Registered places of worship

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

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

Therefore:

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

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


B5. Local Ecumenical Partnerships (LEPs)

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

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

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

B6. Armed forces charities

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

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

Royal Navy and Royal Marines

British Army

Royal Air Force

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

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

B7. Applying for registration

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

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

to apply for registration using our on-line service.

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

The advantages of applying on-line are:

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

Go to the online registration page.

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

B8. Completing the trustee declaration

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

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

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

B9. Frequently Asked Questions from excepted charities

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

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

We hope that the CIO will be available for charities to start using from spring 2012. The availability of the CIO structure does not affect the registration requirement is not affected and charities that are liable for compulsory registration must do so. When the CIO becomes available it will be possible to either convert or restructure the existing charity into a CIO form. View more information on CIOs on our website.

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

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

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

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

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

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

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

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

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

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

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

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

PART C EXEMPT CHARITIES AND THEIR FUTURE REGULATION

C1. Why is the regulation of exempt charities changing?

Before the changes brought in by the 2006 Act, exempt charities were not subject to charity regulation. A Government review found that this was confusing, anomalous and a threat to the integrity of charitable status. The changes in the 2006 Act are designed to introduce regulation for exempt charities in order to address these concerns.

For more information on which charities are exempt, see part A2 of this guidance, and our guidance Exempt Charities (CC23).

C2. How will exempt charities be regulated when the changes in the 2006 Act come into force?

Under the new system exempt charities will either:

  • have a 'principal regulator' to regulate them as charities; or
  • cease to be exempt and have the Commission as regulator.

The rules are changing for different groups of exempt charities at different times. The first phase of changes came into force on 1 June 2010, and the second phase on 1 August 2011. We expect there to be at least two further phases, but no timetable has been set for these.

C3. What are principal regulators and what do they do?

A principal regulator is a government body that already regulates one or more exempt charities and takes on new responsibilities under charity law.

A principal regulator:

  • must promote charity trustees' compliance with their legal obligations to control and manage their charity
  • will monitor charity law compliance
  • can ask the Commission to open an inquiry, if necessary, but cannot investigate charities itself
  • will work with the Commission to ensure that its exempt charities are accountable to the public

C4. Where a principal regulator is appointed, will the Charity Commission be able to use any regulatory powers?

Yes. We can investigate an exempt charity with a principal regulator if the principal regulator asks us to and we can use our other powers if we have first consulted the principal regulator.

C5. Will exempt charities have to register as charities if they have a principal regulator?

No, exempt charities with a principal regulator can not register as charities with the Charity Commission.

C6. Does the Charity Commission appoint principal regulators?

No, the Minister for the Cabinet Office appoints principal regulators.

C7. Which exempt charities now have principal regulators?

The following exempt charities now have principal regulators:

1. The Royal Botanic Gardens, Kew (Kew Gardens)
Principal regulator: The Department for the Environment, Food and Rural Affairs (DEFRA)

2. Sponsored national museums and galleries
Principal regulator – The Department for Culture, Media and Sport (DCMS)

3. Most universities in England
Principal regulator – the Higher Education Funding Council for England (HEFCE)

4. Academy proprietors (otherwise known as academy trusts or academy companies)
Principal regulator – the Department for Education (DfE), assisted by the Young People's Learning Agency (YPLA) until March 2012 when that body is replaced by the Education Funding Agency (EFA)

5. The governing bodies of foundation, voluntary aided, voluntary controlled and foundation special schools
Principal regulators – DfE (for charities in England); Welsh Government (for charities in Wales)

6. Sixth Form College Corporations
Principal regulator - DfE

For further information see section C8.

C8. Where can I find out more about principal regulators, how they will work with the Commission and the exempt charities that they regulate?

We draw up a Memorandum of Understanding (MoU) with each principal regulator, explaining how we will work together.

DEFRA is principal regulator for the Royal Botanic Gardens, Kew (Kew Gardens)

MoU between DEFRA and the Commission  

For more information about DEFRA see http://www.defra.gov.uk/

Kew Gardens website: http://www.kew.org/

DCMS is principal regulator for the exempt Museums and Galleries that it sponsors:

British Library

National Museums Liverpool

British Museum

Natural History Museum

Imperial War Museum

Royal Armouries

National Gallery

Tate Gallery

National Maritime Museum

Victoria & Albert Museum

National Portrait Gallery

Wallace Collection

National Museum of Science & Industry

MoU between DCMS and the Commission  

More information on sponsorship
http://www.culture.gov.uk/what_we_do/museums_and_galleries/6756.aspx

Links to museum and gallery websites
http://www.culture.gov.uk/what_we_do/museums_and_galleries/3383.aspx

http://www.culture.gov.uk/what_we_do/libraries/default.aspx

HEFCE is principal regulator for Universities and other Higher Education Institutions (HEIs) in England

For a list of universities and HEIs regulated by HEFCE, with links to their websites, see http://www.hefce.ac.uk/finance/charities/inst/gateway/

Not all universities and HEIs in England are exempt. For example, the independent colleges of Oxford, Cambridge and Durham Universities will now be regulated by and registered with the Commission. There are also a few universities and HEIs that were never exempt, and are registered charities (see Appendix B of the MoU).

MoU between HEFCE and the Commission  

For further information, see: http://www.hefce.ac.uk/whatwedo/reg/charityreg/

DfE is principal regulator for the following schools and educational charities in England:

  • Academy trusts (including Free Schools)
  • The governing bodies of foundation and voluntary schools
  • Sixth form college corporations

MoU between DfE and the Commission  

 

In England there are

  • over 800 academies
  • 8,100 foundation and voluntary schools
  • 94 sixth form colleges

For further information on these charities see:

DfE website home page: http://www.education.gov.uk/

 

academies webpage (DfE):

www.education.gov.uk/schools/leadership/typesofschools/academies

 

Information on different types of school (Direct.gov)

http://www.direct.gov.uk/en/Parents/Schoolslearninganddevelopment/ChoosingASchool/DG_4016312

 

EduBase – DfE's database of schools and other educational establishments in England and Wales (includes community (state) and independent schools)

http://www.edubase.gov.uk/

 

List of sixth form colleges (Sixth Form Colleges Forum):

http://www.sfcforum.org.uk/component/content/article/86

 

Sixth form college corporations page (DfE):

http://www.education.gov.uk/16to19/administrationandfinance/sixthformcollegedesignation

The Welsh Government is principal regulator for Foundation and voluntary schools in Wales

There are 175 foundation and voluntary schools in Wales (no academies or sixth form college corporations).

A MoU will be agreed between the Welsh Government and the Commission

For further information see:
http://wales.gov.uk/topics/educationandskills/?lang=en

C9. What will be the situation for exempt charities with no principal regulator?

Charities with no principal regulator lose their exempt status and become excepted. The Commission will regulate them, but they will only have to register if their income exceeds £100,000 (see Part B of this guidance).

The following charities are no longer exempt:

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

Most of these charities (apart from a few smaller student unions) must now register. The majority of those that must register have already done so, or are in the process of doing so.

Any other exempt charities for which Government cannot find a suitable principal regulator will also lose their exempt status.

C10. If we are now required to register, is there a deadline?

There is no specific deadline. We would expect a charity to be registered, or at least be in contact with us and preparing to register, within a year of the new requirement coming into force. Otherwise it could raise questions about whether the charity is being properly run.

C11. When will further changes take place?

We cannot say exactly when further changes will take place. It will depend on discussions with other regulators, and the progress of secondary legislation.

C12. What about exempt charities that are waiting to hear how the changes will affect them?

Arrangements are yet to be confirmed for the following groups of exempt charities:

  • Further Education Corporations
  • Charitable Industrial and Provident Societies (including registered providers of social housing)

Charities that are currently exempt will remain exempt until changes affecting them come into force. We will update this guidance when we have more information.

C13. What accounting and reporting requirements apply to charities losing their exempt status on 1 June?

Charities that ceased to be exempt on 1 June do not have to immediately meet all the accounting requirements for registered charities. There are transitional provisions allowing them to complete their current financial year and produce accounts under the accounting rules for exempt charities. After that, they must comply with the accounting and reporting provisions for an excepted or registered charity (whichever applies to them).

C14. What will happen if a charity is in the process of selling or leasing property, taking a mortgage or involved in charity proceedings when it loses its exempt status?

The regulations that came into force on 1 June include saving provisions for charities losing exempt status:

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

The trustees must still act in the interests of the charity, making sure they are properly informed and taking account of all relevant factors when making decisions about these matters.

The legal documents effecting a disposal or mortgage of charity land must state how they comply with the 1993 Act. In these circumstances, and following discussions with the Land Registry, we suggest that the documents should certify that:

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

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

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

We advise charities to consider independent advice on the wording of legal documents.

C15. How can exempt charities prove that they are really charities?

The easiest way for exempt charities to prove that they are charities is by referring to Commission guidance, which lists all the different groups of exempt charities. There is a link to the guidance from the Register home page. Charities are only exempt if they are listed in Schedule 2 to the Charities Act 1993 (as amended), or made exempt by other legislation.

Exempt charities with a principal regulator could ask their principal regulator to confirm that they are charities.

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