What do you need to know?
Charities often make appeals to raise money for a particular project. For instance, a hospice might be looking to buy a much-needed piece of medical equipment. If they raise too much money, how should the charity deal with the extra funds (surplus cases)? Or if they don’t raise enough and the equipment cannot be purchased, what should the charity do with these funds (called initial failure)?
Currently the rules are quite cumbersome and therefore aren’t that well used. For instance, where there is an initial failure, the starting position is that the funds belong to the donor and need to be returned. The Charity Commission can make a cy-près scheme to change the purposes the funds can be used for, but only after the trustees contact donors (where they have details) and those donors agree that the charity does not need to return their donation (called a “disclaimer”), and gives other donors the chance to come forward by placing certain adverts and making inquiries. There is the added uncertainty that, even where the Charity Commission makes a scheme, donors still have six months from the date of the scheme to ask for their donation back.
Jargon buster: ‘cy-près’ and 'scheme'
- ‘cy-près’: a fancy Norman French word meaning ‘as near as’. It means that the Charity Commission can through a scheme allow the funds to be directed to alternative, but similar, charitable purposes.
- ‘scheme’: a device which can be used by the Charity Commission to alter the purposes for which the funds can be used.
Another option is for donors to complete a disclaimer form, saying that they are happy for the donation to be used for other purposes. How feasible is this in practice? Especially given some speedy ways of donating, like text. In some cases, donors can be treated as disclaiming. But the complicated provisions mean this is rarely used.
When there are surplus funds, the current rules are simpler for small funds but otherwise it is currently necessary to ask the Charity Commission to make a scheme to change the purposes for which the surplus funds can be used.
What will the rules be?
If the Bill passes, then these rules are going to be simplified. A new power is being introduced for both initial failures and surplus cases. The trustees, in line with certain conditions, will be able to apply the funds for new purposes, rather than having to ask the Charity Commission for a cy-près scheme. Where the fund exceeds £1,000 Charity Commission consent will be required for the trustee resolution to take effect. If the fund is £1,000 or below, the administrative burden will be lifted and Charity Commission consent is not required.
In the case of initial failures, before the trustees can use this new power, there are some additional requirements to be met. These will allow the funds to be applied cy-près for new purposes if:
- The donations are small – up to £120 in a year (unless the donor has specifically stated otherwise);
- The trustees take reasonable steps (agreed in advance with the Charity Commission) to contact donors to offer to return their donation (i.e. the current complicated advertising and inquiry requirements are scrapped and there is no longer a need for donors to sign a formal disclaimer).
- The donations are raised through a cash collection or from a lottery, competition or similar (this is the same as the current position).
- The Charity Commission decides it would be unreasonable to take steps to contact the donors – because the cost would be disproportionate to the amounts returned, or it would be unreasonable for the donors to expect it to be returned, perhaps because it was a long time ago (this is the same as the current position).
Donors will no longer have the six month period to re-reclaim their donation which currently applies after a scheme is made.
What action should you take now?
All of the issues around failed appeals can be avoided if you prepare your fundraising literature carefully. Make it clear to donors that if the appeal raises too little or too much then the funds will be used for other purposes, like buying more medical equipment, or the charity’s work generally. This is a recommendation of the Charity Commission and a requirement under the Code of Fundraising Practice for specific appeals.
What action do you need to factor into future plans?
Of course we hope that your fundraising appeals are a success (and that you follow the advice to make the wording broad enough) – but bear in mind when you’re planning any specific appeals that things will be much easier once the Bill has passed if they do raise too much or too little.
The Charities Bill, which came out of Lord Hodgson’s review of the Charities Act back in 2012 and the Law Commission’s report on Technical Issues in Charity Law in 2017, is intended to make life easier for charities by reducing regulation and clarifying grey areas in the law. In this new blog series, we untangle the new Bill to pull out the key points your charity will need to know, action now and plan for. Catch up with all the blogs in the series here.
If you would like to discuss any of the changes we’ve outlined above, or you would like any advice on your fundraising materials, please get in touch with Laura Soley, Victoria Schneider or Hannah Lyons. We’ll be happy to help.
This information is necessarily of a general nature and doesn’t constitute legal advice. This is not a substitute for formal legal advice, given in the context of full information under an engagement with Bates Wells.
All content on this page is correct as of July 15, 2021.