Memorandum from Stewardship (DCH 314)
1. STEWARDSHIP'S
INTEREST
1.1 Stewardship is the operating name of
Stewardship Services (UKET) Limited, a registered charity no 234714
(and company limited by guarantee no 90305). It is a cross-denominational
charity serving many churches, Christian charities, evangelists
and missionaries, and individual donors.
1.2 Through our charity formation service
we are involved in the registration of around 70 new charities
each year. We also provide a range of other legal and financial
services to the Christian charitable sector. More than 20,000
individuals use our tax-effective giving services.
1.3 We take an active interest in these
matters, contributing professional expertise (having a solicitor,
four chartered accountants and a chartered surveyor specialising
in charities and charity law on staff) combined with extensive
overall experience in the charity sector.
1.4 We are very aware of the value contributed
to society by the Christian community and seek to highlight and
articulate the public benefit case for all forms of legitimate
Christian religious activity.
2. EXECUTIVE
SUMMARY
2.1 Public Benefit (Paras 4.2-4.3)
We support the approach taken by the Bill and
believe that interpretation of the term public benefit should
be left to the care and reflective consideration of existing case
law and the courts.
Testing of public character by the Charity Commission
should be by exception rather than by a structured programme.
2.2 Audit/Examination of Unincorporated Charities
(Paras 4.7-4.9)
2.2.1 We welcome the removal of the "total
expenditure" test, the three year audit window and the retention
of the £100,000 "accruals" accounting threshold.
However, we consider the "accounts threshold"
(the threshold at which an audit will be required if the asset
threshold is exceeded) should be set higher at £250,000.
It will not be unusual for a non-conformist church, especially
in the south-east to simply have an historic building worth in
excess of £2.8 million but with income of just over £100,000.
We do not believe that a full audit is justified in these circumstances.
2.2.2 Consideration should be given to adding
full members of the Association of Charity Independent Examiners
to the list of qualified examiners subject to the Association
having appropriate internal rules in place.
2.3 Audit/Examination of Charitable Companies
(Paras 4.10-4.12)
2.3.1 We strongly urge Parliament to unify
the independent examination/audit requirements so that a single
set of financial thresholds apply to unincorporated and incorporated
charities and CIOs. A modern, transparent legislative framework
demands this.
2.3.2 We strongly urge Parliament to repeal
the reporting accountant regime in s249A(2) Companies Act 1985
and replace it with a requirement for the more rigorous Independent
Examination, putting corporate charities on the same footing as
unincorporated charities.
2.4 Remuneration of Trustees (Paras 4.13-4.14)
2.4.1 The "best interests" test
in new s73A(4) may impose an undue burden on charities in certain
situations. We believe that dropping the word "best"
will give a more workable framework.
2.4.2 We agree that charity trustees should
not be paid for acting as trustees but we believe that they should
be permitted to be paid under a contract of employment, subject
to appropriate safeguards. This is a very real issue for churches
where the vicar, pastor, minister etc, inevitably has a leadership
role. Similar issues can arise in larger charities where executive
leadership is essential.
2.5 Charitable Incorporated Organisations
(Paras 4.17-4.19)
Much of the framework relating to Charitable
Incorporated Organisations appears to have been left to secondary
legislation. We trust that draft regulations will be subject to
sufficient consultation and Parliamentary scrutiny.
Our detailed submission covers suggested procedural
adjustments on name changes, conversion of guarantee companies
etc to CIOs and amalgamation of CIOs. We also query an implied
disparity in regulatory requirements between CIOs and other forms
of charity.
2.6 Our Submission also comments on
2.6.1 Regulatory Objectives (Paras 4.4-4.5)
2.6.2 Removal of dormant charities (Para
4.6)
2.6.3 Ascertainment of "monetary value"
for trustees benefits in kind (Para 4.15)
3. OVERALL RESPONSE
TO THE
REPORT
3.1 We broadly welcome the Bill and commend
the Parliamentary team on the quality of the preparation and analysis
that has gone into it and the quality of the Bill itself.
3.2 We appreciate and fully support the
work undertaken to meet the desire to create a modern legislative
framework that will enable the sector to both operate and develop
in a dynamic and innovative fashion.
3.3 The sector—and we believe crucially
the Christian community—has a vital role in tackling the
huge task of meeting social need in its multitude of forms in
21st century Britain. The proposals to loosen the at times restricting
regulatory framework for charities and other not-for-profits are
to be welcomed.
3.4 We welcome the clear recognition of
the value of religious charities and the retention of the advancement
of religion as a charitable purpose. Not only does the practice
of religious faith bring benefit to its participants, but contributes
a significant wider benefit to society and has been a major source
of motivation for charitable endeavour.
3.5 Our detailed comments take into account
the modernisation objective as well as recognising the constraints
of framing legislation for a diverse sector that operates in a
continually evolving environment.
3.6 Public benefit is perhaps the most significant
issue for our constituency arising from the draft Bill. Whilst
we are not opposed to the withdrawal of the presumption of public
benefit for religious charities, we are very concerned by suggestions
in some quarters that the Bill should include either a statutory
definition or any form of guidance that may, in time, be treated
as being prescriptive.
3.7 For completeness, we have included as
an Appendix, our comments on public benefit, extracted from our
previous submissions in December 2001 and December 2002 as part
of the Strategy Unit Review of Charities.
4. CLAUSE BY
CLAUSE COMMENTARY
In the comments that follow, our key submission
points are shown in bold type. Comments in ordinary type
are considered to be of secondary importance.
|
| Paragraph | Clause
| Subject | Comment
|
|
| 4.1 | General |
| Would it not be better to introduce the Bill as a consolidating Act?
|
| 4.2.1 | 2. | Public benefit test
| We support the approach taken in the Bill. We do not think that an attempt should be made to define "public benefit" either in the Bill, in Guidance or otherwise. This would risk it being:
|
| Complex and unwieldy
| | |
| Too prescriptive and fixed, leading to the need to constantly update, clarify and add to
| | |
| | |
|
| Subject to creation of law/guidance "on the hoof"
| | |
| | |
|
| Liable to being incomplete
| | |
| | |
|
| Liable to undue political interference
| | |
| | |
|
| It also gives rise to questions such as who would be the competent authority for adding to, clarifying guidance etc
| | | |
| 4.2.2 | |
| To include a definition in the Bill would discard centuries of good case law that have been developed carefully and reflectively over the years.
|
| 4.2.3 | |
| We are also concerned that vociferous pressure groups may try to determine what is not for public benefit either now or in the future where a given purpose is or remains de facto public benefit when all evidence is properly examined in an objective manner.
|
| 4.3 | | |
If Charity Commission are to have a role of testing public character this should be by exception rather than a structured programme (which appears unnecessarily costly and bureaucratic for all concerned). In our view, this would also need a formal appeal process.
|
| 4.4 | 5(2) | [Charity] Commission Regulatory objectives
| What does "social and economic impact objective" mean in practice? This does not fit with all charities (for example charities servicing other charities). Could this be an unnecessary noose for some charities?
|
| (Impact reporting can be dealt with under the "accountability objective".)
| | | |
| 4.4.2 | 5(3) |
| It seems strange to give the Commission an objective of encouraging charities ". . . to maximise their . . . economic impact2. This appears to be a commercial rather than charitable objective.
|
| 4.5 | | |
There appears to be no direct objective referring to the Commission's role of charity support.
|
| 4.6 | 7 | Registration of Charities
| News 3(4)(b) of the 1993 Act imposes a duty: "Shall remove . . ." dormant charities from the register. This is acceptable so long as the Commission will not insist on dormant charities being dissolved. Further, restoration to the register if they recommence operations should be possible.
|
| | Annual audit or examination of unincorporated charities
| |
| 4.7.1 | 22 | New s43(2) CA93. Asset test in s43 2(b)
| Query whether "the accounts threshold" should be set higher at £250,000. Whilst supporting the assets value at £2.8 million, we are concerned that church charities, particularly in the south east may face audit whilst still being very small. For example, they own an historic building valued at over £2.8 million but their income is just over £100,000.
|
| 4.7.2 | |
| Surely Independent Examination is appropriate here, even if confined to "s43(3A) qualified examiners".
|
| 4.8.1 | | Accruals accounting
| We do however support the s42(3) (accruals accounting threshold being retained at £100,000).
|
| 4.8.2 | | Total expenditure threshold
| Removal of "total expenditure" from the accounting thresholds is a welcome simplification.
|
| 4.8.3 | | Audit three year window
| Removal of the three year audit window is a welcome simplification.
|
| 4.9.1 | | New s 43(3A)—Qualified Independent Examiners
| Consideration should be given to adding full members of the Association of Charity Independent Examiners, who are accepted by the Association as having requisite knowledge and experience to carry out examinations of charities of this size.
|
| 4.9.2 | |
| Comment: The Association would need acceptable internal rules to validate the knowledge and experience qualification, possibly by examination.
|
| 4.10.1 | 25 | Audit/Examination of charitable companies
| As presently drafted, the opportunity to remove the disparity in the audit/examination requirements of charitable companies as against unincorporated charities has not been taken up. Why are these artificial differences preserved in the draft Bill?
|
| 4.10.2 | |
| Differences in view between Government Departments should not be allowed to overrule the making of sensible law.
|
| 4.11.1 | | Unified approach
| We would strongly urge the Bill to adopt a unified audit/examination regime. The s249A (2) Companies Act 1985 requirements [Report by reporting accountant] should be repealed in favour of a unified independent examination regime covering all charities including the new CIO.
|
| 4.11.2 | |
| Not only would this make for more sensible law but would provide for more rigorous external scrutiny for corporate charities with income up to £500,000. Surely, it cannot be the intention of Parliament to continue to provide a more lenient scrutiny regime for incorporated charities?
|
| 4.12 | | CIO audit etc regime
| It is not immediately clear from the draft Bill what audit/examination etc thresholds will apply to CIOs. Is this left to regulations under new S69P of the 1993 Act? The Consultation process appears to have been by-passed in this respect.
|
| 4.13 | 27 | Remuneration of trustees—"best interests" test.
| New s73A(4). See also New s73B(3) |
| We are concerned that this could impose an undue burden in some situations. Example: a charity is offered a person's experience/professionalism at a fraction of commercial rates. Will use of the word "best" impose a duty on the trustees to reasonably ensure that another person would not be willing to carry out similar duties for less? We suggest the word "best" is dropped.
| | | |
| 4.14.1 | 27 | Remuneration of trustees—retained restrictions
| New s73A(7) (a) |
| Whilst it is perfectly reasonable not to ordinarily permit a trustee to be remunerated for acting as a trustee, we cannot see the reason for continuing to restrict payments to trustees for services rendered under a contract of employment. Appropriate legal safeguards are needed but a blanket restriction will present real problems for churches where the vicar, pastor, minister or similar inevitably has a leadership role. Under the CA93 functional test, that may deem him or her to be a trustee and yet as a trained person pursuing their vocation, they need to be able to earn a living.
| | | |
| 4.14 | | |
|
| | |
|
| Practical issues also arise in larger charities where it would be helpful and sensible if some trustees (again subject to appropriate legal safeguards) could be part of the executive of the charity.
| | | |
| 4.15 | 27 | Remuneration of trustees. Monetary value of benefits in kind.
| How is "monetary value" to be ascertained? Should there be a cross reference to Taxes Act 1988 or similar body of law?
|
| 4.16 | Sch 6 | Similar name
| New s69F(4) |
| Would it not be better to require a name change as in S6(1) of 1993 Act rather than refusal of application?
| | | |
| | |
|
| (or is this the significance of "shall" in 69F(3) and "may" in 69F(4) ?)
| | | |
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|
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|
| 4.17 | Sch 6 | Conversion of Company Limited by Guarantee/Industrial and Provident Society to CIO
| New Section 69I: |
| It would seem expedient in s69I(3) to include requirements that first, the appropriate registrar notifies the Commission of action taken and second, has a time limit imposed in which to take this action.
| | | |
| Sch 6 | Notice of amalgamation of CIOs
| New s69J(7)(8): |
| 4.18.1 | |
| These provisions seem unnecessarily vague as to first, who should receive notice and second, the time limit for responses.
|
| 4.18.2 | |
| Shouldn't notice be published in a specific place such as Commission Website/London Gazette obviating need for uncertainty/expense in the notification process?
|
| 4.19 | Sch 7 Para 8(2) |
Amendments to CA93 | No Trustees' Annual Report or Independent Examination/audit will be required of a charity (not being a CIO) which has a gross income of less than £5,000 and is unregistered.
|
| | |
|
| Construction: does this mean that CIOs and charitable companies limited by guarantee are to be treated differently?
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|
| Is there any justification for this difference in treatment which will just serve to confuse the sector?
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