How does the new Charities Act affect the rules around failed charity appeals? Our latest blog takes a look.

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)?

Prior to 31 October 2022 the rules were quite cumbersome and therefore weren’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 could make a cy-près scheme to change the purposes the funds could be used for, but only after the trustees contacted donors (where they had details) and those donors agreed that the charity did not need to return their donation (called a “disclaimer”),and gave other donors the chance to come forward by placing certain adverts and making inquiries. There was the added uncertainty that, even where the Charity Commission made a scheme, donors still had six months from the date of the scheme to ask for their donation back.

  • ‘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 was for donors to complete a disclaimer form, saying that they were happy for the donation to be used for other purposes. But how feasible was this in practice? Especially given some speedy ways of donating, like text. In some cases, donors could be treated as disclaiming. But the complicated provisions meant this was rarely used.

When there are surplus funds, the rules were simpler for small funds but otherwise it was necessary to ask the Charity Commission to make a scheme to change the purposes for which the surplus funds can be used.

What are the new rules?

New provisions in the Charities Act 2022, which came into force on 31 October 2022, have simplified these rules.

A new power has been introduced for both initial failures and surplus cases. The trustees, in line with certain conditions, are now 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 old complicated advertising and inquiry requirements have been 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 old 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 also the same as the old position).

Donors no longer have the six month period to re-reclaim their donation which used to apply after a scheme was made.

What else do you need to know?

Do note that 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.

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 now that the new rules under the Charities Act 2022 have come into force if they do raise too much or too little.

The Charities Act, which came out of Lord Hodgson’s review of the Charities Act 2006 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 Act 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.