The Charity Commission’s long-awaited guidance on Accepting, refusing and returning donations was published yesterday (Monday 4 March 2024). There was no consultation on the draft guidance with the sector, which we think would have been a helpful exercise. Accepting, refusing and returning donations is a really tricky area for charities to get to grips with. Various charities have hit the headlines in recent years, with criticism levied against decisions to accept or refuse donations from corporate donors and individuals.
The guidance, which is broadly to be welcomed, confirms the Charity Commission’s existing position that the ‘starting point’ for charity trustees is to accept and keep a donation offered to a charity.
The guidance explains that there are circumstances where a charity must refuse or return a donation such as where there is a legal requirement to do so.
Helpfully, the guidance also clarifies that trustees can also decide to refuse or return a donation where they decide that it is in the charity’s best interest to do so. It is this category that has proved troublesome for charities, with various factors and reputational issues that need to be balanced.
The new guidance says trustees generally have power to refuse or return donations without Charity Commission permission
The most surprising aspect of the new guidance is that, in stark contrast with previous public statements issued by the Charity Commission including in the wake of the Presidents Club donations in 2018 where the Charity Commission publicly stated that returning a donation would often require Charity Commission authorisation on the basis that governing documents of many charities would not allow donations to be returned, the new guidance says that trustees will “usually have general power” to return donations i.e. without Charity Commission involvement. The guidance goes on to say that such a power would generally include a power to dispose of the charity’s property or a general catch-all power (and trustees could amend the governing document to add a power if they don’t have one). Whilst this is good news for charities that they can now properly decide to return donations without the red tape of having to seek Charity Commission authorisation, it is not clear on what basis the Charity Commission has so substantially changed its position.
We are also mindful that, in high-risk matters or where the donation is large, trustees may nevertheless prefer to seek Charity Commission permission, but the new guidance is silent on this. This places the onus squarely on charities and appears to be saying a decision to refuse or return a donation is entirely a matter for the trustees, with no need for Charity Commission consent or involvement.
The Charity Commission’s new position that trustees generally have power to return donations without Charity Commission involvement also has potentially far-reaching consequences. For example, stating that trustees can rely on a catch-all power to dispose of charity assets where the trustees decide it is in the interests of the charity is at odds with the approach taken by the Charity Commission in relation to museums that are looking to return cultural artefacts. Presumably, it will also become rarer for charities to need to make payments using the ex gratia payment route (which generally requires Charity Commission consent) given that it is more likely that trustees will be able to regard themselves as having power to make the payment, without Charity Commission involvement, where they can justify this as being in the interests of the charity on reputational grounds.
It remains to be seen whether any legal concerns are raised about the Charity Commission’s new stance.
The detailed guidance
In terms of the detail of the guidance and trustees’ decision-making around refusing or returning donations, the Commission has helpfully listed some examples of the factors for trustees to consider when making a decision about whether to refuse or return a donation in the interests of the charity. These include:
- the value of the donation and its potential to help further your charity’s purposes;
- the likely financial loss that will result from refusing or returning the donation;
- the short- and long-term impact of the decision on the charity’s ability to further its purposes;
- the extent to which the donation may conflict with the charity’s purposes (e.g. a cancer charity may decide not to accept a donation from a tobacco company);
- the risks involved in the decision e.g. any negative impact on services, beneficiaries or the charity’s ability to attract future donations; and
- reputational considerations, including the views of key stakeholders (though helpfully reminding charities that the trustees should not make assumptions about their views) and the potential for any negative public criticism or other reputational damage.
When making these decisions the Commission expects trustees to comply with their trustee duties, identify the factors that are relevant to their charity (which may vary between organisations), and make a reasonable decision about what is in the best interests of the charity in furthering its purposes. In doing so, trustees must not allow their or others’ ‘personal motives, opinions, or interests’ affect the decision.
Charities must also carefully evidence (which might, for example, include consulting stakeholders) and justify the decision (in-line with a policy on accepting, refusing donations if they have one) and document it. This will be important if the Charity Commission looks into the decision and wants to know how it was made.
There are some areas in the guidance which are somewhat confusing or misleading, particularly as much of the guidance around refusing and returning donations is conflated. Refusing and returning donations could usefully have been separated out in some parts of the guidance as different considerations apply. Some things that jumped out at us which could usefully be corrected or clarified in future iterations of the guidance include:
- There’s a section on ex gratia payments – the guidance says this applies to returning or waiving donations where trustees believe they are under a moral obligation but do not have a legal obligation to return or waive a donation. This is not correct. The relevant provision of the Charities Act 2011 (s106) makes clear that an ex gratia payment is one which the trustees regard themselves as under a moral obligation to make but have no legal power to make, which is fundamentally different.
- The guidance suggest charities will often be able to work with a donor to change the terms of a donation so that they can accept or keep it. This may be true in relation to a donation not yet received, but is unlikely to be correct where a donation has been received – in that case, donors would rarely have retained power to be able to change the donation’s terms and the trustees may instead be able to change the terms themselves, for example using the new power in s280A Charities Act with Charity Commission consent, which is not referenced.
- The guidance around “other donations that you must refuse or return” is a helpful attempt to give short clear examples, but given each of the examples can raise complex legal issues, risks being misleading or confusing.
So while overall the guidance is good news and should reduce red tape for charities, the Charity Commission’s change of position around returning donations is unexpected given its previous public statements and our experience in helping charities in this area and we’d like to see some areas ironed out in future versions of the guidance.
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The material in this article is provided for guidance and general information only and is not intended to constitute legal or other professional advice upon which you should rely. In particular, the information should not be used as a substitute for a full and proper consultation with a suitably qualified professional. Please do contact the Bates Wells team if you require further information.