Charities – Fundraising & The Law

The state of the sector

The new Regulator

The Fundraising Code and new legislation

The view from the Commission

Fundraising and trading- a reminder

Restricted funding and investment

The state of the sector

September 2015, NCVO/ Etherington Review:  “charitable giving should not be assumed to continue at the same level.. the current approach to complaints monitoring fails to sufficiently represent levels of unhappiness with fundraising”. (Approx) Only 2,000 of the 165,000 charities in England and Wales spend more than £100,000 each year on fundraising.

2014, NCVO, Overall for voluntary organisations, for every £1 spent, £4.20 was generated in return.

February 2016, Small Charities Coalition survey:  45% report being ‘not very familiar’ or ‘not at all familiar’ with the review of fundraising regulation; 59% thought a Fundraising Preference Service would lead to ‘an increased administrative burden’; More respondents thought that it would result in a drop in donations (40%), than would result in a ‘better public image’ (29%).

The new regulation

The ‘Fundraising Regulator’ is the new regulator - officially launched in July 2016.

Replaces the Fundraising Standards Board.

Takes ownership and responsibility for the Fundraising Code of Practice away from the Institute of Fundraising.

Regulates charities registered in England and Wales, as well as those jointly registered in Scotland.

Aim is to ensure that fundraising is ‘respectful, open, honest and accountable to the public’.

Function

To set and promote standards of fundraising practice, investigate cases where fundraising practices have led to significant public concern, adjudicate on complaints from the public where charities are unable to do so, operate a Fundraising Preference Service and to recommend best practice guidance and take proportionate remedial action.

The Fundraising Preference Service will sit alongside existing telephone and mail preference services. Individuals can select charities that they no longer want to receive any communications from. These ‘opt-outs’ will be backed by the Data Protection Act 1988.

All charities need to make sure they have systems in place that can cope when the system goes live, irrespective of whether they register with the new Regulator.

The future- opt ins? Time to get ready?

Funding and registration

The Regulator will be funded by a voluntary levy on charities that spend £100,000 or more each year on generating voluntary income. The levy ranges from £150 to £15,000 depending on spend.

The majority of charities will fall outside of the levy group and pay a flat rate registration fee of £50, but only if they wish to register. Reputational benefit?

Third parties and fundraising agencies are also able to register. Voluntary registration is not yet live and is scheduled to open in the next couple of months.

Complaints and adjudication

General complaints: how fundraisers collect/ solicit funds, general relationship with donors, relations with third parties, complaints handling processes, contact preferences.

Complainants need to contact charity before complaining, however Regulator has power to initiate investigations. Resolution with charity, then possibility of investigation and escalation to adjudication.

Adjudication will likely be published, accompanying recommendations and directions. Removal of FR registration and referral to other regulators but no fines or other legal sanction (for non face to face breaches).

BUT breaches of street and door fundraising Rulebooks carry penalties based on a points system- adjudicated by separate directorate. Other fines can be issued by the Information Commissioner if serious breaches of Data Protection legislation (e.g. BHF and RSPC fined by ICO in December 2016- 11 other charities likely to face fines).

The Fundraising Code

Recap- standards expected of all charitable fundraising organisations across the UK, incorporating some legal requirements drawn from legislation and charity/ trusts law, but mostly non- legal, which are nevertheless binding for the purposes of the Code.

Other Rulebooks exist alongside Code for street and door fundraising.

Changes to the Code are being consulted on (to April 2017) include:

• controlling persistent financial requests in calls/ desisting from approach after refusal/ ‘waving away’

•  solicitation disclosure statements being provided before donation requests

•  requirement to have complaints procedure

•  whether current provisions adequately protect vulnerable donors

•  No junk mail/ cold caller signs

Charities (Protection and Social Investment) Act 2016

Sections came into force in November 2016 (which were incorporated into the Code):

Amendments to what is needed as part of commercial participation agreements with commercial fundraisers and partners, i.e. how the commercial organisation will protect the public from unreasonable intrusion on a person’s privacy, unreasonably persistent approaches or undue pressure to give; and how compliance with the agreement will be monitored by the charity.

All existing agreements need to be compliant- Regulator taking a flexible approach until April 2017.

Charities whose accounts are audited must now include extra information about fundraising in their trustees’ annual report, broadly relating to their fundraising policies and complaints in the year.

The View from the Commission

The Charity Commission published new guidance in June 2016- CC20.

6 guiding principles:

•  Planning effectively

•  Supervising your fundraisers

•  Protecting your charity’s reputation, money and other assets

•  Identifying and ensuring compliance with the laws or regulations that apply  specifically to your charity’s fundraising

•  Identifying and following any recognised standards that apply to your charity’s  fundraising

•  Being open and accountable

Charity Commission focus: acting in the best interests, avoiding conflicts and managing risk.

Fundraising and trading- a recap

Is the charity fundraising or trading? Key distinction is that trading can give rise to taxable profits.

Recap- Trading may be permitted as non taxable if it is primary purpose trading, connected/ ancillary trading or falls within an exception relating to size of trade or involves beneficiaries.

Key aspects of trade- consider whether the charity is selling goods or services. Are benefits being provided to recipients with a clear intention to make a profit on a regular basis. 

Need to consider whether both trading and VAT are relevant if providing services in return for a payment. Consider use of separately documented agreements/ declarations to distinguish genuine funding from payments for benefits/ services.

Certain activities are specifically excluded as a trade and regarded as fundraising:

•  the sale or letting of goods donated to a charity for the purpose of sale or  letting (but not substantially altered or improved goods);

• the sale of investments;

• the sale of assets which the charity uses, or has used, for its charitable  purposes;

• the letting of land and buildings where no services are provided to the user; and

• certain fundraising activities:

Irregular events- where there are no more than 15 similar per year at any one location.   Non exhaustive list e.g. includes dances, discos, performances, film showings, exhibitions, quizzes, fetes, fairs, auctions, and small lotteries held by charities (conditions apply) as well as larger lotteries (licenced by Council/ Gambling Commission).

Restricted funding and investment

Fundraising and gifts to charities can generate general, unrestricted funds that the charity has a wide discretion in how to apply. Funds provided for specific purposes must only be used for those purposes.

If terms of a grant or donation are not complied with, charities may be required to return the grant under principles of trust law.

Failed appeals- Similar. Consider use of wording in appeals, e.g. include a saving provision that if appeal fails, funds will be used for general or other specified projects. Option to use Charities Act 2011 sections 63 and 65 powers to ensure Charity has option to seek Charity Commission Scheme to use funds for general/ other projects- useful where failure is possible/ likely that donors will want a return. 

Permanent Endowment

Gift that must be preserved and held as capital, and where income is to be spent. This usually takes the form of either functional endowment such as designated land (e.g. a building itself that must be used for an activity) or investment endowment, where it is a capital sum that can be reinvested in a different format as long as the capital is preserved.

Company charities do not hold permanent endowment unless they act as corporate trustee so PE is usually more relevant to unincorporated/ trust charities.

Small charities can use powers in Charities Act 2011 to spend PE. Larger charities can use a similar power to spend investment endowment subject to Commission consent. Where such capital expenditure is likely to bring about a change to the objects, as would be the case to sell part of a functional endowment, a more interventionary approach is needed via a Charity Commission Scheme.

Presenters

Nadeem Azhar

Nadeem is a partner in the Charities Team. He advises a broad range of charities and private clients on commercial, constitutional and governance matters, with a focus on charity clients. He has experience of advising charitable investment funds and pension schemes. He acts as a trustee of Seafarers UK, the Sylvia Waddilove Foundation and two London theatre companies.

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Peter Spencer

Peter is a solicitor in the Charities Team and advises charities and religious bodies on a wide range of matters including the establishment and administration of charities as well as constitutional and property issues. He also has experience in advising schools, particularly in relation to academy conversions and statutory transfers.

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© Pothecary Witham Weld 2017