The Regulator for Charities in England and Wales
(Version August 2003)
1. This guidance gives advice to trustees of charities whose purposes include the relief of financial hardship, including guidance on who may qualify for help, and examples of practical ways in which charities may be able to offer assistance to people in need, or to provide services to deprived communities.
2. Although the principles discussed in this guidance have a wide application, the guidance and examples concentrate on relief of financial hardship in a UK context. It does not attempt to deal with situations of poverty and hardship addressed by overseas aid charities. We have produced general guidance on our website for "Charities Working Internationally" (under Supporting Charities - Useful Guidelines).
3. In this guidance:
The 1993 Act means the Charities Act 1993.
Governing document means any document which sets out the charity's purposes and, usually, how it is to be administered. It may be a trust deed, constitution, memorandum and articles of association, will, conveyance, Royal Charter, Scheme of the Commissioners, or other formal document.
Permanent endowment is property of the charity (including land, buildings, cash or investments) which the trustees may not spend as if it were income. It must be held permanently, sometimes to be used in furthering the charity's purposes, sometimes to produce an income for the charity. The trustees cannot normally spend permanent endowment without our authority.
Trustees means charity trustees. Charity trustees are the people who, under the charity's governing document, are responsible for the general control and management of the administration of the charity. In the charity's governing document they may be called trustees, managing trustees, committee members, governors, directors, or they may be referred to by some other title.
Must or need to are used to refer to actions that trustees, or their agents or employees, have to take by law.
Where we use terms such as the trustees should or we suggest, recommend or advise we are referring to actions which the trustees, their agents or employees could take and which we consider to be good practice, but which are not legal requirements.
4. Many older charities for the relief of financial hardship, particularly those which were originally set up before the advent of the State welfare system, have objects which refer directly to "the poor" or to "poverty". However, a person does not have to be destitute to qualify as "poor". Nor do people necessarily have to be "poor" over a long period of time to qualify; someone suffering a temporary period of financial hardship due to a sudden change in circumstances (for example an accident or a death in the family) might also be eligible for assistance. Generally speaking, anyone who does not have access to the normal things of life which most people take for granted would probably qualify for help.
5. People may qualify for assistance from a charity whether or not they are eligible for State benefits. Some people who already receive their full entitlement of State benefits may need additional help. Equally, some people who are not entitled to State benefits may sometimes need help because of particular circumstances (where, say, they encounter some gap in an acceptable standard of living which they would it difficult to fill from resources available to them). Each person's actual needs and financial circumstances must be assessed individually. Paragraphs 21 to 31 set out further advice.
6. Qualification for assistance is not restricted to individuals or families. The problems giving rise to chronic financial hardship are often multi-dimensional and cumulative, and affect whole communities. People can become excluded from the opportunities, goods and services necessary for them to live a decent life in modern society, and there may be lasting difficulties on grounds to do with factors such as ethnicity, geography, gender, age, disability and educational and skills attainment. It may be possible for a charity to assist a community in a deprived area, for example by the provision of facilities. In such cases it is not absolutely necessary that all people using those facilities are on low incomes for the charity to be able to assist, as long as most are. Paragraph 18 gives more advice.
7. These various problems can be appropriately tackled by charities in a number of ways both traditional and innovative. Individual charities might think it best to address one element giving rise to financial hardship in individual cases, or a number of elements, including steps taken on a community-wide basis to prevent individual cases of financial hardship arising. How much of this range of options each charity will be able to choose from when determining its policies will depend on what is stated in its governing document (see below).
8. A charity's funds must be spent only for the purpose set out in the charity's governing document. Some governing documents may lay down the precise description of those the charity is designed to help and also the means by which those people's poverty can be relieved (eg the provision of clothing or grants of particular sums at particular times of the year). However, there are many more ways today than there used to be in which charity trustees can help relieve financial hardship where they are free to do so under their governing document.
9. We recommend that trustees of all charities regularly review their use of the charity's funds, to ensure that the money is spent most effectively in carrying out the purposes of the charity. These reviews are particularly important for the trustees of charities for the relief of financial hardship. This is because of continuing changes in economic and social circumstances, changes in the nature of public provision and the vulnerability of people on low incomes. Trustees should ask themselves whether they are in fact relieving poverty, and whether they are spending the charity's funds in the most helpful way.
10. Rather than trying to spread the charity's resources thinly among as many people as possible, trustees could consider whether it might be more effective to target their funds by giving larger benefits to a smaller number of people who are most in need and thus make an appreciable difference.
11. At the same time, trustees must make every effort to ensure that the benefits given to individuals are no more than those actually required to relieve their need. To give people benefits which do more than this would not be fulfilling the purposes of the charity and would be an improper use of charity funds.
12. If trustees think the purposes in the charity's governing document are unduly restrictive, they might consider modifying them either by using the provisions contained in section 74 of the 1993 Act (if it is applicable to their charity) or by applying to us for a Scheme. These procedures are explained in paragraphs 34 and 35 of this guidance.
13. There are a number of ways in which trustees may be able to give assistance of real value to people in need. If the charity's purposes are expressed in general terms then, any or all, of these options may be open to the trustees, but some governing documents are specific about the ways in which poor people may be helped. If trustees are in any doubt as to whether they have the power to assist in a particular way, we suggest that they contact us for advice. Some examples of how poor people may be assisted are listed below, and others will doubtless occur to trustees.
Grants of money in the form of:
The provision of items (either outright or, if expensive but appropriate, on loan) such as:
Payment for services such as:
The provision of facilities such as:
14. Charities for the relief of financial hardship may give extra help to people on low incomes who are also sick, convalescent, infirm, or with disabilities, whether physically or mentally.
Grants of money in the form of:
The provision of items such as:
The provision of services such as:
The provision of facilities such as:
15. As well as giving grants to individual people in need, or to organisations on behalf of those individual people, trustees can also make grants to other charities and organisations which offer help to people on low incomes. In this case, however, trustees must ensure that any donation will be passed on, in cash or kind, to persons who qualify as proper recipients of assistance from the donor charity.
16. On this basis, grants to almshouse charities and other charities which cater exclusively for people on low incomes, are permissible provided that the receiving charities operate in the same area of benefit as the donor charity.
17. Grants cannot be made by a charity for the relief of financial hardship to another charity if that charity's purposes and activities do not include the relief of poverty. Examples of local charities which could not, therefore, be supported by a charity for the relief of financial hardship include: village halls; recreation grounds; and church restoration funds. Although poor people may use these facilities, they are not primarily provided for the benefit of poor people.
18. However, some local charities may cater only or mainly for poor people even though their purposes may not be strictly confined to the relief of financial hardship. For example, in a particularly deprived area most people attending a youth club or an old age pensioners' club may be on low incomes, although membership of the club is not limited to poor people. If trustees wish to give a general grant to another charity in such circumstances, they will need to find out whether, in practice, the charity's beneficiaries are people on low incomes. If they are, then a grant may be permissible. Even if a few people who are not poor will benefit, this will not prevent a grant if their benefit is merely incidental and unavoidable, and the bulk of the benefit is for poor people. Again, we suggest that trustees contact us for advice if they are in any doubt.
19. A grant could also be made to another charity having a variety of purposes, one of which was for the relief of financial hardship. In such a case a grant could be made in support of that charity's work subject to the specific condition that it be used by that charity in relieving need.
20. Charities for the relief of financial hardship may also be able to undertake what is termed "social investment" or "programme-related investment", ie furthering their stated charitable purposes through means such as the provisions of loans, guarantees or subscription for shares in certain enterprises such as local employment projects. For further details, see "Charities and social investment" on our website under Supporting Charities - Useful Guidelines.
21. Trustees need to take care not to use the charity's funds simply to replace State benefits. To use the charity's funds in this way would not make the beneficiaries any better off: it would simply mean that they were getting from a charity what they had previously been receiving from the State. In effect the charity would be relieving the State, not the beneficiary.
22. The charity's funds should be used in a way which would actually benefit the recipients in addition to any assistance that they can receive from the State. Charitable funds can be used when people are still in need even after receiving all State benefits to which they are entitled. Trustees can also use charity funds to relieve temporary need when there is a delay in receiving statutory benefits. We advise trustees to consider whether such payments should be on terms that they will be repaid (in whole or in part) when the arrears of the benefit are paid.
23. We recommend that trustees familiarise themselves with the system of State benefits, including how a person's State benefits may be affected by receiving a grant by a charity. For example 'one off' charitable payments may be treated as capital for Income Support purposes and may affect a person's benefit entitlement if by receiving a payment their capital exceeds current capital thresholds. When assessing a person's income or financial circumstances, trustees need to count as part of that income any State benefits they know the person is entitled to receive. Trustees should not make payments to a person simply to replace unclaimed benefits. Instead we suggest that trustees encourage potential beneficiaries to claim their full entitlement of State benefits. Guidance is available from local Social Security offices about the benefits available to:
24. Where a charity identifies a service affecting its users which is not being provided to the required statutory level out of public funds, it is entitled to consider whether there is anything it can reasonably do to persuade the public body to provide funds for that service. Our guidance Charities and Contracts (CC37) provides some more information on this.
25. We advise trustees to keep in regular contact with local Social Security offices and with the Social Services Department of the local authority. By consulting about specific cases trustees can find out how to help a person with charitable funds without affecting the State benefits which that person may be receiving. Similarly the Social Security and local authority can also develop an understanding of the work of the charity.
26. The Social Security arm of the Department of Work and Pensions (DWP) also administers the Social Fund which is intended to help people meet exceptional expenses from their regular income. Many of these payments are made in the form of interest-free loans instead of grants. Nobody has a right in law to a loan or grant from the Social Fund - it is up to the officers administering it to decide when an applicant's circumstances are such that a loan or grant can be made.
27. For the reasons explained in paragraphs 21 to 25 above, charitable funds should not be used as a substitute for benefits to which a person has a statutory right. Nevertheless, in determining whether a loan or grant may be made, Social Fund officials are in some circumstances also obliged by law to consider whether an applicant could be helped from another source, such as a charity.
28. It is important to avoid applicants being shunted between a Social Security office and a charity.
29. When an applicant has been referred by a Social Security official to a charity, we would advise trustees to assume that the Social Fund cannot help in that particular case, and that the official was acting in the knowledge of the help the charity could give and not on the basis of mere speculation. To help in this trustees may wish to consider explaining their policy on the selection of applicants to their local Benefits office(s).
30. Trustees may feel that a particular office or officer is misunderstanding the work of the charity or using the availability of charitable funds to avoid Social Fund expenditure. We recommend that in these cases they discuss this with the official concerned and, if necessary, subsequently at a higher level.
31. There are circumstances where trustees can make payments to a person even if that person has been promised a Social Fund loan. These are:
32. Trustees of some charities for the relief of financial hardship may find it difficult to spend all the charity's income in the way the governing document demands. This may be because the level of poverty in the charity's area of benefit has decreased significantly in recent times, and there are fewer needy people. In these circumstances trustees must take positive steps to search for potential beneficiaries for example by:
33. If trustees:
then there are a number of courses of action which they could take to enable them to apply the charity's funds in a more effective way.
34. In many cases the trustees of a small charity can, if they wish, use the provisions of section 74 of the 1993 Act to amend the charity's objects. This allows the trustees of a charity with an annual income of £5,000 or less to amend the trusts of the charity to provide more achievable objects, or transfer the property of the charity to another similar one. Full details of the qualifying requirements and the procedure involved in using these provisions can be found in our guidance Small Charities: Transfer of Property, Alteration of Trusts, Expenditure of Capital (CC44).
35. If it is not possible for the trustees to use these provisions we may be able to help by making a Scheme. This is a legal document which can, among other things, amend the objects of a charity. The procedure is set out in our guidance Amending Charities' Governing Documents: Orders and Schemes (CC36).
36. If you would like any further information or advice please write to us at the office nearest to you. If your charity’s income is £10,000 a year or less, please write to our Liverpool office. The addresses are on the inside front cover.
(The previous version of this guidance was dated August 2001.) Various changes in this revised version are intended to: clarify the scope of the guidance (paragraphs 1-2); modernise the terminology used (throughout); and indicate the range of individuals and groups who may qualify for help (paragraphs 4-7). Other minor and consequential amendments have been made to keep the text as up to date as possible.