Consultation on draft guidance on NHS charities

Contents

1. Introduction
About the Commission’s new guidance to NHS charities.

2. 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.

2.1. Working definition
2.2. Statutory definition
2.3. Charitable funds held by Foundation NHS Trusts or s51 trustees
2.4. Charities not administered by NHS appointed trustees
2.5. Land and buildings of former charitable voluntary hospitals
2.6. NHS matters not related to charitable funds

3. History of NHS charities and trusteeship

3.1. The “statutory remit” of NHS trustees
3.2. The developing framework in table form showing:

• The succession of NHS bodies that have been given a statutory remit to hold funds;
• The implications of funds moving between trustees with different statutory remits;
• The development of powers to hold and accept funds;
• How the remits and powers translate into how the funds should be classified (restricted / unrestricted).

3.3. “Blending” of unrestricted general purpose funds

4. Types of NHS Trusteeship and the governance implications

4.1. Introduction
4.2. Corporate trustees
4.3. Transfers of trusteeship and funds between corporate trustees
4.4. Individual trustees
4.5. Implications for governance where there is a corporate trustee
4.6. Child protection and vulnerable beneficiaries issues

5. Registering NHS charities and the use of “model” documents

5.1. Compulsory registration criteria
5.2. Umbrella/group registrations and uniting directions
5.3. Use of model documents to formalise unwritten trusts

6. Transfers of trusteeship and funds upon re-organisation of services (formal and informal re-organisations)

6.1. S.213 orders
6.2. Department of Health minimum threshold (£500,000) for trusteeship
6.3. Default transfers
6.4. Considering and implementing changes of trusteeship resulting from statutory instruments
6.5. Changing trusteeship where the Secretary of State for Health/  Welsh Ministers has not allocated trusteeship to the service provider
6.6. Accounting for transfers
6.7. The charity mergers register (S. 44 Charities Act 2006)

7. Classifying funds (restricted v unrestricted and designated) and reviewing structures

7.1. The General position for charities

7.1.1. Restricted Funds
7.1.2. Unrestricted funds
7.1.3. Designated funds
7.1.4. Are donors’ wishes trusts?

7.2. The position for NHS Charities

7.2.1. Formalisation of trusts of charitable funds during the mid-late 1990s
7.2.2. Two different approaches to the process of formalising the trusts:

• The single charity approach;
  
• The general + special purpose charities approach (multiple charities).

7.2.3. Designations in the NHS context

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

7.4. Steps towards restructuring the funds to a single charity approach

• Checking the current analysis of the funds;
• Actively reducing the proportion of restricted funds held;
• Dissolving the special purpose charities and re-allocating funds to the general purpose charity;
• Developing practices to ensure correct classification of future donations at point of receipt.

7.5. Options where restrictions can no longer be applied to the letter

7.5.1. The impact of some NHS legislation on trusts
7.5.2. S220 National Health Service Act 2006)  
7.5.3. S218 National Health Service Act 2006:   bequests and other private trusts for hospitals
7.5.4. S222 National Health Service Act 2006: funds raised by appeal
7.5.5. Charities Acts (1993 and 2006):

• Small charities (income < £10,000);
• Schemes (and orders) for larger charities.

8. Accounting / auditing issues

8.1. Sample accounts
8.2. Accounting regulations that affect NHS charities
8.3. Audit position

8.3.1. Previous
8.3.2. Current
8.3.3. Foundation NHS Trusts
8.3.4. S22.51 trustees

8.4. Apportionment of costs between charities and funds
8.5. Apportionment of investment gains and losses between charities and funds
8.6. Accounting for transfers

9. General principles of appropriate spending

9.1. Does it fit within the scope of the objects and of any donor imposed restrictions?
9.2. Are there many or few steps between the immediate application of the funds and the intended charitable outcome?  
9.3. The impact and the “opportunity cost”: it may be a way to further the objects but is it the most effective way?
9.4. Public benefit
9.5. What do the model NHS general purpose objects mean in terms of the scope for spending?

9.5.1. The general purpose charity’s objects do not match the statutory remit: how should this be dealt with?
9.5.2. What should be paid for from exchequer funds and what can be paid for from charitable funds?
9.5.3. Should NHS charities make grants or loans to pay for equipment?

9.6. Use of funds to benefit staff

9.6.1. Overview
9.6.2: Specific forms of staff benefit:

• Recreational facilities;
• Christmas parties and other social functions.

9.6.3. What if the funds were given with the intention of providing staff benefits? 
9.6.4. Tax implications of providing benefits to staff

9.7. Liability and insurances
9.8. Charitable purposes abroad

Contact us

Other useful contacts and guidance
Glossary of terms used

Appendices:

Board members and Charitable Fund Committees:  frequently asked questions
Example appropriate spending
Governance (PDF)
Impact: setting priorities to achieve impact
Inquiry: the consequences of lack of separation of decisions relating to the charitable funds (from decisions relating to the exchequer funds)
Model Receipt (PDF)
Power to compromise
Transfer accounting notes
Trusts and Trusteeship

1. 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 Foundation NHS 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; and
• staff who are given the status of fund advisers / holders.

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 / Welsh Assembly Government 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 Department of Health and the Welsh Assembly Government.   Most of the legislation referred to, which dates from 1988 or later, can be viewed via the website of the Office for Public Sector Information (http://www.opsi.gov.uk).

“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  symbol 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 Department of Health for English NHS charities do not automatically apply to Welsh NHS charities. References to “The Department of Health” therefore only reflect the position in England. Advice should be sought from the Welsh Assembly Government concerning its policies on issues arising from NHS legislation for Wales (see Contact us).

We have tried to make a distinction 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 and policies relating to NHS legislation affecting NHS charities (which fall to the Department of Health / Welsh Assembly Government respectively).  In practice trustees and those administering NHS charitable funds should contact the Department of Health / Welsh Assembly Government on any issues relating to NHS legislation and the resulting policies (see Contact us).

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 Foundation NHS Trust charities …”).

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, therefore, you can contact the Charity Commission (see Contact us)

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

Yes. Please send your request by email and we can supply you with a Word 2003 version that can be edited.

2. What is an NHS charity?

2.1. 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).

2.2.  This is largely consistent with the statutory definition given at s43 of the Charities Act 1993 (following an amendment made by Clause 3(7) of The Regulatory Reform (National Health Service Charitable and Non-Charitable Trust Accounts and Audit) Order 2005 (SI  2005 No. 1074) which reads:

"English National Health Service charity" means a charitable trust, the trustees of which are – 

(a) a Strategic Health Authority;
(b) a Primary Care Trust;
(c) a National Health Service trust all or most of whose hospitals, establishments and facilities are situated in England;
(d) trustees appointed in pursuance of section 11 of the National Health Service and Community Care Act 1990 (c.19), or special trustees appointed in pursuance of section 29(1) of the National Health Service Reorganisation Act 1973 (c.32) and section 95(1) of the National Health Service Act 1977 (c.49), for a National Health Service trust falling within paragraph (c); or
(e) trustees for a Primary Care Trust appointed in pursuance of section 96B of the National Health Service Act 1977.

"Welsh National Health Service charity" means a charitable trust, the trustees of which are – 

(a) a Local Health Board;
(b) a National Health Service trust all or most of whose hospitals, establishments and facilities are situated in Wales; or
(c) trustees appointed in pursuance of section 11 of the National Health Service and Community Care Act 1990 (c.19), or special trustees appointed in pursuance of section 29(1) of the National Health Service Reorganisation Act 1973 (c.32) and section 95(1) of the National Health Service Act 1977 (c.49), for a National Health Service trust falling within paragraph (b)."

2.3. Charitable funds held by NHS Foundation Trusts or S51 trustees (formerly s22 trustees) 

The Charity Commission, for the purposes of this guidance, has included charities linked to Foundation NHS Trusts in its working definition of NHS charities.

 The definitions in s43 of the Charities Act 1993 (see 2.2 above) do not extend to Foundation NHS Trusts or to trustees appointed under section 51 of the NHS Act 2006 (a re-enactment of section 22 of the Health and Social Care (Community Health and Standards) Act 2003 but sections 212-222 of the National Health Service Act 2006 clearly provides for both Foundation NHS Trusts and s51 trustees to be appointed as trustees of NHS charities and charitable funds.

2.4. 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 Appointments Commission,  for example Hospital Leagues of Friends, are not NHS charities for the purposes of this guidance.

2.5. Land and buildings of former charitable voluntary hospitals

 Section 6 of the National Health Service Act 1946 transferred virtually all existing voluntary hospitals” to the Minister of Health from the appointed day (5th April 1948) “freed from 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 former status as the property of a charity will have any relevance to that closure / sale.   There are a few exceptions to this position and where they apply the Charity Commission may have a role to play in the disposal of such a site (but not in the decisions relating to closure of the hospital).

Section 6 was re-enacted under section 219 and 221 of the National Health Service Act 2006 with effect from 1st March 2006.

2.6. NHS matters not related to charitable funds

 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.

3. History of NHS charities and trusteeship

3.1. 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 (e.g. 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 Department of Health discourages NHS trustees from accepting responsibility for non charitable trust funds (see DOH 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.

3.2. 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).  

3.3. “Blending” of general purpose funds received under different statutory remits

Although many of the more recent categories of NHS trustee (e.g. Acute Hospital Trusts, PCTs, S11 trustees ) have very similar statutory remits, funds held by earlier categories (e.g. Boards of Governors of Teaching Hospitals, Special Trustees) had narrower remits.   This means that some unrestricted funds held by the current trustees actually 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 7.4. suggests possible strategies to reduce the proportion of current funds that are limited in their application by virtue of having been received under a former statutory remit. The Commission may be able to offer advice or authority where such a restriction is preventing the application of current funds.

4.  Types of NHS Trusteeship and the governance implications

4.1. 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 re-organisations 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 re-organisations.  

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

 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 (please see Contact us).   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 DOH Guidance.

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

4.2. 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 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 2 main categories of NHS body that deliver services:

• NHS Trusts including:
  • Acute hospital trusts / Foundation status hospital trusts
  • (Partnership) Mental Health Trusts 
  • Ambulance Trusts

• Primary Care Trusts (community provision – commissioner of services).

In addition there are a few Care Trusts established (by designating existing NHS bodies using powers under section 77 of the NHS Act 2006). 

• Strategic Health Authorities (“SHAs”) may hold charitable funds but it has not been Department of Health policy to allocate trusteeship to SHAs (see DOH 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;

4.3. Transfers of trusteeship and funds between corporate trustees

The transfer of charitable funds to a new corporate trustee ordinarily requires a Statutory Instrument made under s213 of the NHS Act 2006 (typically referred to as a “transfer order”) but there are default transfer arrangements where such an order has not been made – please see transfers of trusteeship and funds upon re-organisation.

In the case of Foundation Trusts (and purely in the context of trusteeship of NHS charitable funds) the establishment of a Foundation Trust is considered not to be the creation of a new NHS body.  Instead it is treated as being the change of status of the existing NHS Trust.  If an NHS Trust is awarded Foundation status, therefore, there is no direct impact on the trusteeship of the charitable funds.   The establishment of a s51 body (see 4.4) is a separate issue dealt with in the same way as the establishment of a s11 body.

4.4. Individual Trustees

Provision is made in current NHS legislation for 3 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).   S11 was re-enacted under paragraph 10 of Schedule 4 to the NHS Act 2006 (and the power to create such bodies is now formally also exercisable by Welsh Ministers) but the term s11 has been retained in this guidance for ease of reference.  The creation of such a body of trustees and the transfer to it of charitable funds requires a s213 “transfer order”.    It has been Department of Health policy only to create a s11 body where the charitable funds to be held exceed £10m (see DOH Guidance). Initially the individual trustees were each appointed by the Secretary of State for Health, but this responsibility now rests with the Appointments Commission.

• S51 trustees: these are the equivalent of s11 trustees appointed in relation to 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).

It has been understood that vacancies in any existing S51 body fall to be filled by the Appointments Commission (not Monitor - the Regulator for Foundation NHS Trusts). (Please see The National Health Service Foundation Trusts (Trust Funds: Appointment of Trustees) Order 2007 S.I. 2007 (No. 1776) which has made temporary provision for appointments).

4.5. 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:

4.5.1. Who is / are the trustees?

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

• 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.

We have produced guidance (Board) directed particularly to those who serve on Boards of NHS bodies that are corporate trustee and who may serve on charitable funds committees.   It seeks to put into context the roles of Board members / Charitable funds committee members.

4.5.2. 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.

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

• 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).  Accepting or soliciting funds for non-NHS charitable purposes may not result in those funds belonging to the NHS trustee but employees must of course seek proper authority before engaging in such fund raising during the course of their employment. In summary, the employees are the trustee’s(s’) agent when they accept donations for charitable purposes linked to the NHS body.

4.5.3. 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 CC37 Charities and Public Service Delivery – An Introduction and Overview.  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 and open 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 (and indeed in other ways) 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 9.5.

4.5.4. 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 (e.g. Trust board, Charitable Fund Committee, Finance Function, fund holders / advisers) can be seen at the following link Governance.   This does not set out to define specific governance arrangements (e.g. 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.

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

This section is subject to current discussion with the Appointments Commission, which is responsible for appointment of trustees and of non-Executive members of Boards of NHS bodies acting as corporate trustees.  The proposed guidance will aim to advice trustees of their responsibilities, taking account of the role and practice of the Appointments Commission.

Child protection and vulnerable beneficiaries issues (and other trustee disqualifications)

 The Charity Commission is very concerned to ensure that charities:

• fully meet their legal obligations in relation to child protection and the safeguarding of other vulnerable groups; and
• apply “best practice” in these areas.  

We publish generic guidance for charities on our website as follows:

• CRB disclosures + Registration Application pack (form 5c)
• Safeguarding children 

In the case of NHS charities neither the Charity Commission nor existing trustees are directly responsible for the appointment of individual trustees (special, s11 or s51) or non-executive members of Boards (where the NHS body is corporate trustee).   That responsibility lies with the Appointments Commission. 

The Charity Commission is satisfied that the processes and procedures of the Appointments Commission in relation to the recruitment of such individuals.

should ensure that disqualified individuals (under the Criminal Justice and Court Service Act 2000) would not be appointed to a role in which they administer NHS charities (as trustees or as members of Boards of corporate trustees) if in that role they have contact with vulnerable groups.

We also note that the Appointments Commission requires potential appointees (as trustees or as members of Boards of corporate trustees) to certify that they are not disqualified from acting (for a range of reasons that correspond to the disqualifications for acting as a trustee set out in s72 of the Charities Act 1993). 

In addition we are satisfied that the standing orders / procedures / regulations governing the recruitment of Executive Board members are sufficient to ensure that disqualified individuals (under the Criminal Justice and Court Service Act 2000) would not be appointed to a role in which they administer NHS charities (as members of Boards) if in that role they have contact with vulnerable groups.   We are also satisfied that potential appointees are required to certify that they are not disqualified from acting (for a range of reasons that correspond to the disqualifications for acting as a trustee set out in s72 of the Charities Act 1993). 

In summary, the Charity Commission is satisfied that the procedures linked to the appointment of Executive and Non Executive Board members of corporate trustees (and of individual trustees within the NHS) should be sufficient to prevent disqualified individuals from serving in “trusteeship” roles in NHS charities.  

In relation to the safe recruitment of staff or volunteers by NHS charities our advice to trustees is the same as for all charities (see links above).

What should the trustee(s) do if one of their number / a member of the Board, at some point after their appointment has taken effect,

• confirms they are disqualified from acting as a trustee of charitable funds; or
• has been convicted of an offence which is grounds for disqualification under the Criminal Justice and Court Service Act 2000?
• is accused of an offence which, if proven, would be grounds for disqualification under the Criminal Justice and Court Service Act 2000?

Neither the trustees of an NHS charity nor the Charity Commission have power to remove an appointee of the Appointments Commission (made under delegated authority from the Secretary of State for Health).   If a substantive allegation is made against such an individual (or the individual is cautioned or convicted of a disqualifying offence) the trustee(s) must approach the Appointments Commission concerning the suspension or removal of that individual.

5. Registering NHS charities and the use of “model” documents

5.1. Compulsory registration criteria

NHS charities are subject to the same registration criteria as all other charities (as set out on our Website Registering a Charity) 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.

5.2. Umbrella / group registrations and uniting directions

5.2.1. 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 (i.e. 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 5.3).   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 (i.e. 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 i.e. 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.

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:

• the trusts as originally declared have actually failed (cannot be implemented – e.g. 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
• the trusts have effectively been altered by action of the Secretary of State for Health or Welsh Ministers e.g. a re-organisation of NHS services by Statutory Instrument means that the objects can no longer be implemented by the trustee(s) because a different service provider has been substituted for the one referred to in the objects.
• There is some 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 7.4).

If the power of amendment does not specifically refer to the Commission’s prior approval the trustees must 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.

“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 s96(6) of the Charities Act 1993 –uniting directions) under a single registration number. The “umbrella” charity would serve as the “main” charity on the register (subsidiary “0”).  These were known as “umbrella registrations”.

5.2.2. Current practice 

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 the practice now adopted when creating a new registration for NHS charitable funds is to treat all the charities linked to an NHS trustee (or body of trustees) as “constituents” of a “group registration”.   The “group” name is recorded under the following formula:

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

That is the name of the “single charity” for CHARITIES SORP purposes.   

All the charities are then registered as “subsidiaries” (as described on the Central Register of Charities) usually with the general purpose charity as the first subsidiary.  That charity is also the “reporting charity” responsible for preparing the annual reports and accounts in accordance with the CHARITIES SORP purposes, with the special purpose charities treated as the “linked charities”.

5.2.3.  The process of registering a new group registration

Re-organisations of services within the NHS inevitably result in transfers of trusteeship of NHS charities between NHS bodies.   Where the re-organisation 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 group registration) we will in most cases “recycle” the existing group registration.   This minimises the number of actions required to update the register of charities.   If the new trustee executes a single supplemental deed to update all the charities’ deeds (see Model H ) to refer to their new trustee we can simply:

• update the details of each charity in the group (this will include the governing document text to refer to the supplemental deed and may include the name and objects text); and
• update the group registration name (typically from “X NHS Trust General …” to “Y NHS Trust General .. etc”; and
• update the contact details if required.

Where the re-organisation moves some charitable funds to a newly created NHS body as trustee (without any existing NHS bodies dissolving) it is appropriate to create a new group registration linked to the new body.   The process of transfers (and the impact on the registration of the charities concerned) is explained in more detail in paragraph 6.

N.B. because of current technical restrictions within the underlying database of charities the Commission has not “converted” umbrella registrations to group registrations.  Both categories appear on the Register.  We will provide an update when this becomes possible.

5.2.4. The process of registering a charity within a group registration

Where there is an existing group 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.   We will check:

• Whether the objects appear to reflect the underlying trusts?
• Whether it appears appropriate for the trustees to establish a charity: would a “designated fund” within the general purpose charity be more appropriate?
• Whether the administrative clauses correctly reflect the trustee position e.g. if there is a corporate trustee have the names of its board been listed at the start of the Deed?

Subject to these checks we will:

• enter the charity on the register as the next “subsidiary” of the group;
• confirm the registration in writing, including a uniting direction under s96 of the Charities Act 1993.

5.3. 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 4 models  available:

Model A for a general purposes charity where a corporate trustee is acting;
Model B for a general purposes charity where a body of individual trustees is acting;
Model C a special purposes charity where a corporate trustee is acting;
Model D for a special purposes charity where a body of individual trustees is acting.

If you would like a Word 2003 version of any of these models, that can be edited, please send your request by email.

6. Transfers of trusteeship and funds following re-organisation of NHS services (formal and informal re-organisations)

Introduction:

It is suggested that this section is read in conjunction with DOH guidance.  In Wales trustees should contact the Welsh Assembly Government (see Contact us).

6.1. s213 orders (formerly “S92” orders) under Section 213 of National Health Service Act 2006 – implemented 1st March 2007  

To give effect to a planned re-organisation of NHS services the Secretary of State for Health/  Welsh Ministers make(s) Statutory Instruments in two stages.  The first carries out the re-organisation (i.e. moves the services and exchequer funds between NHS bodies).  This may include a Statutory Instrument to dissolve one body (or several) and a Statutory Instrument to establish its / their successor(s) (or a whole sequence of inter connected Statutory Instruments depending on the complexity of the re-organisation).

The second stage of Statutory Instruments derives from 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).   A s213 order is made specifically to transfer charitable funds following the re-organisation of the services. 

S213 orders may also be made where only trusteeship is to be altered (and there is no related re-organisation) e.g. if S11 trustees are appointed to replace Special Trustees or a Corporate trustee.

In Wales the transfer Order would be made by Welsh Ministers (not the Secretary of State for Health) under s161 of the National Health Service (Wales) Act 2006 (rather than s213).

In the case of a Foundation NHS Trust the view has been taken by the Department of Health (with regard to the linked charitable funds only) that its establishment does not create a new NHS body, but is instead the change of status of the existing NHS Trust.  If an NHS Trust is awarded Foundation status, therefore, there is no automatic impact on the trusteeship of the charitable funds and no “transfer”.   The trust deeds of the charities held by the Trust (or by the s51 trustees if there were s11 trustees in place) are likely to need to be updated, however, 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 .

6.2. Department of Health minimum threshold (£500,000) for trusteeship

The Department of Health’s policy (in relation to NHS charities in England) is 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 is at least £500k (see DOH Guidance).  Prior to January 2006 the threshold was £350k.   If the funds fall below this threshold the trusteeship of the funds is vested in a larger NHS body in the same geographical area.   

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 the pattern of s213 transfers does not mirror the effect of the service re-organisation in all cases.

6.3. Default transfers

On occasions, for various reasons, the Secretary of State for Health does not make a s213 order to deal with the charitable funds of a dissolving NHS body (“the body”).    The Department of Health’s established practice has been that the allocation of the charitable funds in such circumstances defaults to the allocation of the exchequer funds.  In the case of NHS Trusts, transfers of exchequer funds (and of the statutory right, responsibilities and liabilities for service provision) are made by Statutory Instruments under paragraph 29 of schedule 4 to the NHS Act 2006.   There are equivalent provisions for PCTs and other NHS bodies dealing with the transfer of their exchequer funds and statutory responsibilities.

In the absence of a transfer Order under section s213 the charitable funds are deemed to have transferred as the overall transfer of responsibilities between the NHS bodies.   Those “rights, responsibilities and liabilities” are transferred using a form of order made by the Department and known as a “(Transfer of staff, Property, Rights, and liabilities) Order”, made in the name of the dissolving body.  These orders are not published Statutory Instruments but can serve as evidence of the change of trusteeship of the charitable funds for the Commission’s purposes.

In effect it is accepted that the transfer of charitable funds will “mirror” the transfer of exchequer funds in these circumstances unless the charitable funds were held (by virtue of past trusteeship arrangements put in place by the Secretary of State for Health) by another NHS body as trustee or by special trustees, s11 or s51 trustees at the point at which the service provider NHS body dissolved.  In those circumstances the trusteeship remains with those existing trustees.

6.4. Considering and implementing changes of trusteeship resulting from Statutory Instruments

This section assumes that:

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

It summarises the options for “new” (or receiving) NHS trustees following the re-organisation, the steps they need to take and how the trusteeship changes would be reflected on the register of charities. 

Receiving Trustees should consider the scope to re-structure the funds they receive before proceeding with the relevant scenario set out below (please see 7.3 - 7.4. below).

• 6.4.1.1. A straightforward merger of two or more NHS bodies to create a single new NHS body (see scenario 1).    

• 6.4.1.2. A re-organisation in which a single NHS body is re-organised with the possibility of some of its services being transferred and / or new services being taken on by that body (see scenario 2).

• 6.4.1.3. A re-organisation 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).

6.5. Changing trusteeship where the Secretary of State for Health / Welsh Ministers has not allocated trusteeship to the service provider

Subject to the point made at 4.1. (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:

• 6.5.1. No re-organisation of NHS bodies has taken place 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 Secretary of State for Health / Welsh Ministers does / do not wish to make a s213 / S161 order but is / are willing to agree to the movement of the funds.   The suggested process is set out in scenario 4.

• 6.5.2. A re-organisation 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 totalled less than £350,000 (or £500,000 after January 2006) (see 6.2.).  No s213 orders have been made so the funds remain with the existing trustees. The total of all the funds of the merging bodies is now 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 is willing to agree to the movement of the funds. The suggested process is set out in scenario 5.

• 6.5.3. A re-organisation 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 the funds of each merging body totalled less than £350,000 (or £500,000 after January 2006) (see 6.2.).  No s213 orders have been made so some of the funds remain with the existing trustees whilst some have moved by default (6.3. above). The total of all the funds of the merging bodies is now 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 merged body’s services on its behalf.

The relevant bodies are willing to transfer the funds and the Secretary of State for Health is 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 8.6.)

• 6.5.4. The re-designation 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 Foundation Trust trustee or a s11 trustee body becomes a s51 trustee body. The suggested process to recognise the change is for the new Trustee (in the case of a Foundation Trust) to use Model F (corporate) or the new Trustees (in the case of s51 trustees converting from s11 trustees) to use Model F (individual). This is scenario 7 for the purposes of purposes of 8.6. below.

• 6.5.5. The form of trusteeship changes with the discontinuation of a corporate trustee and creation of a s11 or s51 body of trustees to administer the funds previously solely administered by the corporate trustee. The suggested process to recognise the change is for new Trustees (in the case of s51 trustees converting from s11 trustees) to use Model H(2). This is scenario 8 for the purposes of purposes of 8.6. below.

N.B. incorporated trustee bodies: If a body of individual trustees has been incorporated under the Charities Acts and the name of the incorporate trustee body will be affected by re-organisation (e.g. because the name of the NHS body to which the trustees are linked has changed) the trustees should contact the Charity Commission to arrange a new trustee incorporation certificate.

6.6. Accounting for transfers

Please see section 8.6 of this guidance.

6.7. The charity mergers register (S. 44 Charities Act 2006)

Generic guidance on the Mergers register can be found on the Commission’s Website.   One of functions of the Register will be 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”?

Although 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 group registrations the Commission does not regard the consequential changes to those charities (change of name, change of objects, re-grouping under a different registration number) as being "mergers" within the meaning of the S. 44 Charities Act 2006.  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 section 8.6.)

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 7.4. 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.

7. Classifying funds (restricted v unrestricted and designated) and reviewing structures

7.1. The general position for charities

The terms “restricted” and “unrestricted” are contained in the Charities SORP.  What follows is a summarised explanation only.

7.1.1. 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).  

These legally binding requirements for (or limitations on) use are known as “trusts” (and fall within the definition of “trusts” given at s97 of the Charities Act 1993).   Funds should only be classified as “restricted” if they are subject to trusts.   Please see 7.1.4.

A fund restricted to use for particular purposes is effectively a charity in its own right and may fall to be registered in certain circumstances (please see 5.1.).  Trustees who receive a restricted donation or other restricted payment, however, 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.

7.1.2. 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.  Note 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.

7.1.3. 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 are normally treated as designated funds which are in effect part of the unrestricted funds but designated for use in relation to a particular ward, department, specialty or service.

7.1.4. 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 Edition).

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 e.g. by saying it “must be used” or “can only be used” for a specified purpose.  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 e.g. a Will, a letter from a donor, terms of a grant, appeal literature.

7.2. The position for NHS Charities

7.2.1. Formalisation of trusts of charitable funds during the mid-late 1990s

As explained in 5.2 and 5.3, 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 and may be designated funds held for the statutory remit of the receiving trustee.

7.2.2. Two different approaches to the process of formalising the trusts

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 e.g. 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 + 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 that donors had imposed a restriction or which were designated where donors’ wishes or intentions were clear) were allocated to special purpose charities.  Some trustees opted for broad special purpose charities (e.g. one per hospital) and others established a greater number to reflect sub-divisions of service provision e.g. 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.

7.2.3. Designations in the NHS context  

As indicated above, designations are created at the discretion of trustees from general purpose funds of the charity.   In the context of the NHS, however, it is 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 or the context of the gift (e.g. to a particular fund holder / adviser or within a particular setting) gives a strong indication of a donor’s wishes.  These expressed wishes or contextual clues provide a fairly clear indication / expectation (but not a legal restriction) on how the donation should be used if possible and practicable. 

NHS trustees should have due regard to these indications / expectation as a basis for creating designations and allocating donations between designated funds.

7.3. 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 re-organisation 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, 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.

7.4. Steps towards restructuring the funds to a single charity approach

7.4.1. 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.    In the absence of such evidence the Commission takes the view that the funds in question can properly be re classified as unrestricted.  

If such a re-classification 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.

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 2 years ago has now been spent;
• the trustee(s) spent all the unrestricted and the restricted income and had regard to 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 two 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 two years.

7.4.2. Actively reducing the proportion of restricted funds held

As restricted funds are subject to legally enforceable trusts, any misapplication of such funds 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 (please see 7.4.4. below) to limit the creation of new restricted funds;
• spending the restricted funds first, whenever possible e.g. 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 7.5, which deals with options for the release or modification of restrictions that can no longer be fulfilled.

7.4.3. Dissolving the special purpose charities and re-allocating 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 fund 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.

7.4.4. 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.   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 be available explaining the nature and role of the charitable funds, the trustee’(s)’ priorities for spending and how to donate in the most effective ways (see also Model Receipt and Gift Aid) . 

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 CC8 Internal Financial Controls for charities.

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.   Please click model receipt to view an updated version of the receipt. 

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 Her Majesty’s Revenue and Customs 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.

7.5. Options where restrictions can no longer be applied

7.5.1. 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”.  

7.5.2. S220 National Health Service Act 2006 - implemented from 1st March 2007 (re-stated section 7 NHS 1946)

Section 7 of the NHS Act 1946 removed all trusts from charitable funds transferred to the NHS on the “appointed day” (5th July 1948) but then went onto 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.

7.5.3. S218 National Health Service Act 2006, implemented from 1st March 2007, deals with bequests and other private trusts for hospitals. Section 218 restated section 91 of the National Health Service Act 1977.

Introduction 

The law relating to charitable bequests is complex and our general advice to executors or NHS trustees would be to approach the Charity Commission in writing whenever it appears that a bequest relating to the NHS cannot be applied to the exact terms of the bequest.   In order to advise we will need sight of a full copy of the probate copy of the will, together with confirmation that any lifetime interests that take precedence to the gift to the hospital or NHS service have ended.  In suitable circumstances we will make a cy pres scheme under section 13 of the Charities Act 1993 to redirect the bequest to similar charitable purposes.

The “failure” of a charitable bequest at the point when it first takes effect may result in other individuals or institutions seeking to raise a claim upon the bequest.  Such claims will need to be resolved before the Commission is approached to make a scheme.   We would draw executors’ and trustees’ attention to the power to compromise conferred by s15(f) of the Trustee Act 1925 as one possible route to resolving claims.  Another possible route to resolving some claims might be an ex gratia payment (CC7 Ex gratia payments by charities).

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 pres 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).    S218 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” (s218(3)) contains an implied power 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 re classified 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).

7.5.4. Section 222 of the National Health Service Act 2006 – implemented from 1st March 2007 (Section 222 restated S96A National Health Service Act 1977):

Introduction

In the wider charitable sector appeals are regulated by s14 Charities Act 1993 (as amended by sections 16-18 of the Charities Act 2006).   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 6 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] thinks fit" 

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.

7.5.5. Charities Acts (1993 and 2006)

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 and Small Charities: changes, transfers and winding up on our website.

N.B.  Many NHS charities were first established under statutory trusts.  These define not only 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 4.1.).   NHS Trustees should therefore contact us before taking any action under the “small” charities provisions 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.
  
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 leaflet CC36 - Amending Charities' Governing Documents: Orders and Schemes.

These provisions are being modified by the implementation of the Charities Act 2006.

N.B. Many NHS charities were first established under statutory trusts.  These define not only 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.   The Commission will not normally exercise its powers where the effect will be to change the objects beyond a statutory remit or to change trusteeship arrangements put in place by the Department.

8. Accounting / auditing issues

Introduction

Prior to 1st April 2005 NHS bodies were under an obligation to provide accounts for charitable funds to the Secretary of State for Health / Welsh Ministers and to the Charity Commission.   To meet the Department’s reporting requirements NHS bodies had to complete and submit these accounts by the end of May (based on a fixed financial year end of 31st March).  To assist in the submission of these returns, the Department of Health (in England) published a Funds Held On Trust Manual and a set of Charity Trust Forms (CTFs). The format of accounts was determined by the Department of Health, in liaison with the Commission (to ensure they were consistent with the CHARITIES SORP requirements).  

The Regulatory Reform (National Health Service Charitable and Non-Charitable Trust Accounts and Audit) Order 2005 (the “RRA”) brought “dual accounting” to an end and was effective for NHS financial years beginning from 1st April 2004.   In consequence the Funds Held on Trust Manual and CTF forms were discontinued. NHS charities have always had to submit a trustees’ annual report and accounts in compliance with the CHARITIES SORP requirements and Charities Accounts and Reports Regulations (see 8.3) in the same way as other charities.  This became the sole filing requirement.   NHS trustees have up to 10 months from the end of the financial year to prepare and submit the statement of account.

8.1. Sample accounts

In recognition of the transition from the CTF format and of certain unusual features in NHS charities the Commission has published sample accounts formats. There are three examples:

• a Primary Care Trust corporate trustee administering its own funds and funds on behalf of other NHS bodies;
• a s11 trustees of an NHS Trust; and
• an NHS Trust corporate trustee. 

These were prepared jointly with the Health Financial Management Association and the Association of NHS Charities. NHS examples (PDF 26kb) (subject to Audit) can be accessed through the Commission’s website.

8.2. Accounting regulations that affect NHS charities

The current accounting regulations which together affect NHS charities can be found on the Office for Public Sector Information Website (www.opsi.gov.uk).   The regulations are in addition to (or in some cases have modified) the specific requirements contained in part VI the Charities Act 1993.  Those requirements were further modified (with effect from 27th February 2007) by the Charities Act 2006.   The relevant regulations are:

Charities (Accounts and Reports) Regulations 2005 (SI 2005 No. 572).

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

8.3. Audit position

8.3.1. Previous

Prior to the RRA the arrangements for audit of NHS charitable funds were those required by the Secretary of State for Health / Welsh Ministers (auditors appointed by the Audit Commission) and fell outside the audit appointment regime set out in s43 of the Charities Act 1993.  It was therefore necessary for NHS bodies to apply for an Audit / Accounts scrutiny Dispensation from the Charity Commission to allow audit by the Audit Commission appointees.

8.3.2. Current  

Please see Operational Guidance Charities Accounts and Reports OG15 (including Audit Dispensations) on the Commission’s Website.

The following summary applies to NHS charities as defined by the RRA (with the exception of Foundation Trusts and trustees for Foundation Trusts – please see 8.3.3. and 8.3.4.)

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 booklet CC15 Charity Reporting and Accounting: The essentials.

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. 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 section 43A of the Charities Act 1993, which was inserted into the Act by the RRA.

The qualifications for appointment are as follows (rather than the qualifications set out in section 43(2) of the Charities Act 1993).

"(5) A person shall not be appointed by the 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 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.

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 43B of the Charities Act 1993, which was inserted into the Act by the RRA.

6. Where the appointed auditor to an NHS charity (as defined by the RRA) conducts and 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. There is nothing corresponding to the default audit provisions in section 43(4) to (6) of the Charities Act 1993 (as amended by the Charities Act 2006) which permits the Commission to appoint an auditor to a charity which applies in the case of an NHS charity (as defined by the RRA) and similarly the related powers under section 44(2) and (3) of the Act (as amended) do not apply to NHS charities.

8.3.3. Foundation NHS Trusts

When the RRA modified s43 of the Charities Act 1993 the definitions of “English / Welsh National Health Service Charity” did not include Foundation Trusts. The arrangements for the appointment of an auditor to an NHS foundation trust and for its accounts are set out in paragraphs 23-24 of Schedule 7 to the NHS Act 2006 Act, but those charities not defined by the RRA as NHS charities (Foundation Trust corporate trustees, s22 / s51 trustees) are subject to the same audit and examination regime as all other charities and should refer to booklet CC15.

As a result:

• The charities linked to a Foundation Trust fall within the general audit and independent examination regime for charities rather than the NHS charities’ specific charity audit regime; and
  
• If a 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 a Foundation Trust wishes to ask the Audit Commission or the Auditor General Wales to appoint an auditor (in the same way as other NHS bodies) it will need an Audit Dispensation.

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

• a 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 audit dispensation.

and

• the Foundation Trust’s request to the Charity Commission for an audit dispensation (OG15 L1 – fourth example).

The Commission has standard wording for the granting of a dispensation (please see Operational Guidance Charities Accounts and Reports OG15 at L2, fifth example (including Audit Dispensations) on the Commission’s Website.

8.3.4. The audit position for S22 / s51 trustees

Section 43A of the Charities Act 1993 (as inserted by the RRA) 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 1993 audit and independent examination therefore applies in the same was as to a Foundation Trust acting as corporate trustee (see 8.3.3) .

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 section 43A of the Charities Act 1993.  For accounting and audit purposes the charities are governed by the general provisions in section 43 of that Act.  

8.4. Apportionment of costs between charities and funds

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 charities and restricted funds, on the one hand, and designated funds on the other.

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 on a “pool” basis for operating the whole group registration.  The Charities SORP requires governance costs to be separately reported but support costs are to be allocated where possible and / or apportioned across all charitable activities.

The rules for allocating / apportioning support costs are, in summary:

• there must not be any cross subsidy between charities e.g. the running costs of all the charities should not be allocated entirely to the largest income charity within a group registration.   Each charity should meet its own running costs where those costs are identifiable. 
• within a charity the costs relating to any restricted charitable funds should 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 to ensure that it does not contain an explicit requirement that none of its should not be used for the costs of administering the gift.
• 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.

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.

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

If the trustees are so minded they could take a decision in principle to "net off" the costs of administering some or most of their restricted funds and charities.   They would do this in the opening accounts of the next financial year, by making grants from the general purpose charity to each of the restricted funds / charities.  These grants would effectively "repay" the costs incurred by each of the restricted funds / charities in the previous financial year by transferring funds out of unrestricted funds (general funds).   Although the effect would be the same as not charging costs to those restricted funds and charities in the year in question, it requires a very different accounting treatment. In particular it involves using the transfer line in the SoFA.