Charities Bill [HL]

House of Commons

Session 2005 - 06
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Charities Bill [HL]

Charities Bill [HL]
Part 2 — Regulation of charities
Chapter 6 — Audit or examination of accounts where charity is not a company
29

(3C)
Subsection (3D) below applies where—
(a)
the charity trustees of a charity have executed a mortgage of
land held by or in trust for a charity in accordance with
subsection (2) above, and
(b)
the mortgage has effect to secure the repayment of sums paid by
5
way of loan or grant, or the discharge of other obligations
undertaken, after the date of its execution.
(3D)
In such a case, the charity trustees must not after that date enter into
any transaction involving—
(a)
the payment of any such sums, or
10
(b)
the undertaking of any such obligations,

unless they have, before entering into the transaction, obtained and
considered proper advice, given to them in writing, on the matters or
matter mentioned in subsection (3)(a) to (c) or (3A) above (as the case
may be).”
15
(3)
In subsection (4) (meaning of “proper advice”)—
(a)
for “subsection (2)” substitute “this section”; and
(b)
for “the making of the loan in question” substitute “relation to the loan,
grant or other transaction in connection with which his advice is
given”.
20
Chapter 6
Audit or examination of accounts where charity is not a company
28
Annual audit or examination of accounts of charities which are not companies
(1)
Section 43 of the 1993 Act (annual audit or examination of accounts of charities
which are not companies) is amended as follows.
25
(2)
For subsection (1) substitute—
“(1)
Subsection (2) below applies to a financial year of a charity if—
(a)
the charity’s gross income in that year exceeds £500,000; or
(b)
the charity’s gross income in that year exceeds the accounts
threshold and at the end of the year the aggregate value of its
30
assets (before deduction of liabilities) exceeds £2.8 million.

“The accounts threshold” means £100,000 or such other sum as is for the
time being specified in section 42(3) above.”
(3)
In subsection (2) (accounts required to be audited) for paragraph (a)
substitute—
35
“(a)
would be eligible for appointment as auditor of the charity
under Part 2 of the Companies Act 1989 if the charity were a
company, or”.
(4)
In subsection (3) (independent examinations instead of audits)—
(a)
for the words from “and its gross income” to “subsection (4) below)”
40
substitute “but its gross income in that year exceeds £10,000,”; and
(b)
at the end insert—

Charities Bill [HL]
Part 2 — Regulation of charities
Chapter 6 — Audit or examination of accounts where charity is not a company
30


“This is subject to the requirements of subsection (3A) below where the
gross income exceeds £250,000, and to any order under subsection (4)
below.”
(5)
After subsection (3) insert—
“(3A)
If subsection (3) above applies to the accounts of a charity for a year and
5
the charity’s gross income in that year exceeds £250,000, a person
qualifies as an independent examiner for the purposes of paragraph (a)
of that subsection if (and only if) he is an independent person who is—
(a)
a member of a body for the time being specified in section
249D(3) of the Companies Act 1985 (reporting accountants);
10
(b)
a member of the Chartered Institute of Public Finance and
Accountancy; or
(c)
a Fellow of the Association of Charity Independent Examiners.”
(6)
For subsection (8) substitute—
“(8)
The Secretary of State may by order—
15
(a)
amend subsection (1)(a) or (b), (3) or (3A) above by substituting
a different sum for any sum for the time being specified there;
(b)
amend subsection (3A) by adding or removing a description of
person to or from the list in that subsection or by varying any
entry for the time being included in that list.”
20
29
Duty of auditor etc. of charity which is not a company to report matters to
Commission
(1)
After section 44 of the 1993 Act insert—
“44A
Duty of auditors etc. to report matters to Commission
(1)
This section applies to—
25
(a)
a person acting as an auditor or independent examiner
appointed by or in relation to a charity under section 43 above,
(b)
a person acting as an auditor or examiner appointed under
section 43A(2) or (3) above, and
(c)
the Auditor General for Wales acting under section 43B(2) or (3)
30
above.
(2)
If, in the course of acting in the capacity mentioned in subsection (1)
above, a person to whom this section applies becomes aware of a
matter—
(a)
which relates to the activities or affairs of the charity or of any
35
connected institution or body, and
(b)
which he has reasonable cause to believe is likely to be of
material significance for the purposes of the exercise by the
Commission of its functions under section 8 or 18 above,

he must immediately make a written report on the matter to the
40
Commission.
(3)
If, in the course of acting in the capacity mentioned in subsection (1)
above, a person to whom this section applies becomes aware of any
matter—
(a)
which does not appear to him to be one that he is required to
45
report under subsection (2) above, but

Charities Bill [HL]
Part 2 — Regulation of charities
Chapter 6 — Audit or examination of accounts where charity is not a company
31

(b)
which he has reasonable cause to believe is likely to be relevant
for the purposes of the exercise by the Commission of any of its
functions,

he may make a report on the matter to the Commission.
(4)
Where the duty or power under subsection (2) or (3) above has arisen
5
in relation to a person acting in the capacity mentioned in subsection
(1), the duty or power is not affected by his subsequently ceasing to act
in that capacity.
(5)
Where a person makes a report as required or authorised by subsection
(2) or (3), no duty to which he is subject is to be regarded as contravened
10
merely because of any information or opinion contained in the report.
(6)
In this section “connected institution or body”, in relation to a charity,
means—
(a)
an institution which is controlled by, or
(b)
a body corporate in which a substantial interest is held by,
15

the charity or any one or more of the charity trustees acting in his or
their capacity as such.
(7)
Paragraphs 3 and 4 of Schedule 5 to this Act apply for the purposes of
subsection (6) above as they apply for the purposes of provisions of that
Schedule.
20
(8)
Nothing in this section applies to a charity which is a company.”
(2)
In section 46 of the 1993 Act (special provisions as respects accounts and
annual reports of exempt and excepted charities)—
(a)
in subsection (1) for “sections 41 to 45” substitute “sections 41 to 44 or
section 45”; and
25
(b)
after subsection (2) insert—
“(2A)
Section 44A(2) to (7) above shall apply in relation to a person
appointed to audit, or report on, the accounts of an exempt
charity which is not a company as they apply in relation to a
person such as is mentioned in section 44A(1).
30
(2B)
But section 44A(2) to (7) so apply with the following
modifications—
(a)
any reference to a person acting in the capacity
mentioned in section 44A(1) is to be read as a reference
to his acting as a person appointed as mentioned in
35
subsection (2A) above; and
(b)
any reference to the Commission or to any of its
functions is to be read as a reference to the charity’s
principal regulator or to any of that person’s functions
in relation to the charity as such.”
40
30
Group accounts
(1)
After section 49 of the 1993 Act insert—
“49A
Group accounts
(2)
The provisions of Schedule 5A to this Act shall have effect with respect
to—
45

Charities Bill [HL]
Part 2 — Regulation of charities
Chapter 7 — Charitable companies
32

(a)
the preparation and auditing of accounts in respect of groups
consisting of parent charities and their subsidiary undertakings
(within the meaning of that Schedule), and
(b)
other matters relating to such groups.”
(3)
Schedule 6 (which inserts the new Schedule 5A into the 1993 Act) has effect.
5
Chapter 7
Charitable companies
31
Relaxation of restriction on altering memorandum etc. of charitable company
(1)
Section 64 of the 1993 Act (alteration of objects clause etc.) is amended as
follows.
10
(2)
For subsection (2) substitute—
“(2)
Where a charity is a company, any regulated alteration by the
company—
(a)
requires the prior written consent of the Commission, and
(b)
is ineffective if such consent has not been obtained.
15
(2A)
The following are “regulated alterations”—
(a)
any alteration of the objects clause in the company’s
memorandum of association,
(b)
any alteration of any provision of its memorandum or articles of
association directing the application of property of the
20
company on its dissolution, and
(c)
any alteration of any provision of its memorandum or articles of
association where the alteration would provide authorisation
for any benefit to be obtained by directors or members of the
company or persons connected with them.
25
(2B)
For the purposes of subsection (2A) above—
(a)
“benefit” means a direct or indirect benefit of any nature, except
that it does not include any remuneration (within the meaning
of section 73A below) whose receipt may be authorised under
that section; and
30
(b)
the same rules apply for determining whether a person is
connected with a director or member of the company as apply,
in accordance with section 73B(6) and (7) below, for
determining whether a person is connected with a charity
trustee for the purposes of section 73A.”
35
(3)
In subsection (3) (documents required to be delivered to registrar of
companies), for “any such alteration” substitute “a regulated alteration”.
32
Annual audit or examination of accounts of charitable companies
(1)
In section 249A(4) of the Companies Act 1985 (c. 6) (circumstances in which
charitable company’s accounts may be subject to an accountant’s report
40
instead of an audit)—
(a)
in paragraph (b) (gross income between £90,000 and £250,000) for
“£250,000” substitute “£500,000”; and

Charities Bill [HL]
Part 2 — Regulation of charities
Chapter 9 — Charity trustees etc.
33

(b)
in paragraph (c) (balance sheet total not more than £1.4 million) for
“£1.4 million” substitute “£2.8 million”.
(2)
In section 249B(1C) of that Act (circumstances in which parent company or
subsidiary not disqualified for exemption from auditing requirement), in
paragraph (b) (group’s aggregate turnover not more than £350,000 net or
5
£420,000 gross in case of charity), for “£350,000 net (or £420,000 gross)”
substitute “£700,000 net (or £840,000 gross)”.
33
Duty of auditor etc. of charitable company to report matters to Commission
After section 68 of the 1993 Act insert—
“68A
Duty of charity’s auditors etc. to report matters to Commission
10
(1)
Section 44A(2) to (7) above shall apply in relation to a person acting
as—
(a)
an auditor of a charitable company appointed under Chapter 5
of Part 11 of the Companies Act 1985 (auditors), or
(b)
a reporting accountant appointed by a charitable company for
15
the purposes of section 249C of that Act (report required instead
of audit),

as they apply in relation to a person such as is mentioned in section
44A(1).
(2)
For this purpose any reference in section 44A to a person acting in the
20
capacity mentioned in section 44A(1) is to be read as a reference to his
acting in the capacity mentioned in subsection (1) of this section.
(3)
In this section “charitable company” means a charity which is a
company.”
Chapter 8
25
Charitable incorporated organisations
34
Charitable incorporated organisations
Schedule 7, which makes provision about charitable incorporated
organisations, has effect.
Chapter 9
30
Charity trustees etc.
Waiver of disqualification
35
Waiver of trustee’s disqualification
In section 72 of the 1993 Act (disqualification for being trustee of a charity) after
subsection (4) insert—
35
“(4A)
If—

Charities Bill [HL]
Part 2 — Regulation of charities
Chapter 9 — Charity trustees etc.
34

(a)
a person disqualified under subsection (1)(d) or (e) makes an
application under subsection (4) above five years or more after
the date on which his disqualification took effect, and
(b)
the Commission is not prevented from granting the application
by virtue of paragraphs (a) and (b) of subsection (4),
5

the Commission must grant the application unless satisfied that, by
reason of any special circumstances, it should be refused.”
Remuneration of trustees etc.
36
Remuneration of trustees etc. providing services to charity
After section 73 of the 1993 Act insert—
10
“73A
Remuneration of trustees etc. providing services to charity
(1)
This section applies to remuneration for services provided by a person
to or on behalf of a charity where—
(a)
he is a charity trustee or trustee for the charity, or
(b)
he is connected with a charity trustee or trustee for the charity
15
and the remuneration might result in that trustee obtaining any
benefit.

This is subject to subsection (7) below.
(2)
If conditions A to D are met in relation to remuneration within
subsection (1), the person providing the services (“the relevant person”)
20
is entitled to receive the remuneration out of the funds of the charity.
(3)
Condition A is that the amount or maximum amount of the
remuneration—
(a)
is set out in an agreement in writing between—
(i)
the charity or its charity trustees (as the case may be),
25
and
(ii)
the relevant person,

under which the relevant person is to provide the services in
question to or on behalf of the charity, and
(b)
does not exceed what is reasonable in the circumstances for the
30
provision by that person of the services in question.
(4)
Condition B is that, before entering into that agreement, the charity
trustees decided that they were satisfied that it would be in the best
interests of the charity for the services to be provided by the relevant
person to or on behalf of the charity for the amount or maximum
35
amount of remuneration set out in the agreement.
(5)
Condition C is that if immediately after the agreement is entered into
there is, in the case of the charity, more than one person who is a charity
trustee and is—
(a)
a person in respect of whom an agreement within subsection (3)
40
above is in force, or
(b)
a person who is entitled to receive remuneration out of the
funds of the charity otherwise than by virtue of such an
agreement, or

Charities Bill [HL]
Part 2 — Regulation of charities
Chapter 9 — Charity trustees etc.
35

(c)
a person connected with a person falling within paragraph (a)
or (b) above,

the total number of them constitute a minority of the persons for the
time being holding office as charity trustees of the charity.
(6)
Condition D is that the trusts of the charity do not contain any express
5
provision that prohibits the relevant person from receiving the
remuneration.
(7)
Nothing in this section applies to—
(a)
any remuneration for services provided by a person in his
capacity as a charity trustee or trustee for a charity or under a
10
contract of employment, or
(b)
any remuneration not within paragraph (a) which a person is
entitled to receive out of the funds of a charity by virtue of any
provision or order within subsection (8).
(8)
The provisions or orders within this subsection are—
15
(a)
any provision contained in the trusts of the charity,
(b)
any order of the court or the Commission,
(c)
any statutory provision contained in or having effect under an
Act of Parliament other than this section.
(9)
Section 73B below applies for the purposes of this section.
20
73B
Supplementary provisions for purposes of section 73A
(1)
Before entering into an agreement within section 73A(3) the charity
trustees must have regard to any guidance given by the Commission
concerning the making of such agreements.
(2)
The duty of care in section 1(1) of the Trustee Act 2000 applies to a
25
charity trustee when making such a decision as is mentioned in section
73A(4).
(3)
For the purposes of section 73A(5) an agreement within section 73A(3)
is in force so long as any obligations under the agreement have not been
fully discharged by a party to it.
30
(4)
In section 73A—
“benefit” means a direct or indirect benefit of any nature;
“maximum amount”, in relation to remuneration, means the
maximum amount of the remuneration whether specified in or
ascertainable under the terms of the agreement in question;
35
“remuneration” includes any benefit in kind (and “amount”
accordingly includes monetary value);
“services”, in the context of remuneration for services, includes
goods that are supplied in connection with the provision of
services.
40
(5)
For the purposes of section 73A the following persons are “connected”
with a charity trustee or trustee for a charity—
(a)
a child, parent, grandchild, grandparent, brother or sister of the
trustee;
(b)
the spouse or civil partner of the trustee or of any person falling
45
within paragraph (a);