Legal update

In light of the Court of Appeal ruling of February 2020, please find below some information which may be of assistance.

On 19 February 2020, the Court of Appeal delivered its judgment in the case of McKee & Others v Charity Commission for Northern Ireland, upholding a legal challenge to the delegation of decision-making powers by the Commission to members of staff.

The case addressed a technical point of law, namely that all Commission orders and decisions must be made by the Board of Commissioners or a committee to include Commissioners with delegated authority, rather than Commission staff following manuals approved by Commissioners.

The judgment is welcomed as a vital clarification of the law, which is imperative to enable the Commission to undertake its statutory duties and give charities confidence in the regulator and its powers.

While the judgment does not relate to the reasoning behind any decisions made, it does have significant implications for past decisions and on how the Commission operates going forward. The FAQs below aim to address that impact, outlining what the judgment means.

It is recognised the impact of the judgment may create some confusion for charities, particularly at a time of increased anxiety due to the COVID-19 health emergency. The Commission would like to take this opportunity to assure the public and, in particular the charity sector, that a temporary solution has been implemented and we are doing all we can working with partners, including the Department for Communities, to resolve the issues raised by the judgement and seek a preferred way forward. Further information on this is available in the FAQs below, in The Future of charity regulation section.

It is also important to be aware that the judgment does not prevent any organisation which is a charity in law from operating as a charity. Whether or not your organisation is a charity in law is determined by the wording of your governing document. Registration, which is required by the law, recognises that you are a charity, but does not make you a charity. This was done when the organisation was established with charitable purposes. Further information and guidance on areas, including the impact on charity registration and annual reporting, is also available in the FAQs below.

As highlighted above, while a permanent solution is being sought, the Commission’s work and oversight of the charity sector is continuing. For example, the Commission has adjusted its procedures to comply with the court judgment. This means that while some Commission decisions may be delayed and the volume of decisions made has been temporarily reduced, everyone can be assured that work on applications, requests and queries is ongoing.

This also means that all organisations/groups which have been contacted by the Commission, for example, to apply for charity registration, must submit their application as normal and by the set deadline.

We apologise for any inconvenience the current situation may cause. If any charity is experiencing difficulty as a result of awaiting a decision of the Commission, please contact the Commission, outlining the issues in detail.

The Commission’s website has been updated to remove a number of items for consideration, following the ruling. This includes all statutory inquiry reports and the register of removed trustees.

Statement from the Department for Communities

“The Department accepts the Court of Appeal Judgment. The determination of the Court raises complex issues in respect to charity regulation in Northern Ireland from 2013 when the Charity Commission began registration and going forward.  As such, the Minister will want to understand all of the potential impacts of the Judgment on past decisions to determine what is in the best interests of all stakeholders and to ensure that any future arrangements are fully considered as they will set the course for charity regulation in Northern Ireland and must be in the wider public interest.

“The Department is assured that the Charity Commission has introduced interim procedures to ensure decisions can be taken in compliance with the Judgment. The Minister will shortly determine how the Department intends to respond to the issues raised by the Judgment. In the meantime the Department can give an assurance to those charities that were unlawfully registered that they remain charities in law and need do nothing differently in the interim.”

FAQs

• Charity registration
• Charity registration and HMRC charity tax reliefs
• Annual reporting
• The future of charity regulation

Charity registration

Up until the end of May 2019, decisions relating to whether or not an organisation should be registered as a charity were made by the Commission’s registration team. This was in keeping with the processes agreed by the Board of Commissioners based on an interpretation of the law at that time. The Court of Appeal judgment has clarified the position and means those decisions are now considered to be void as they were not made at Commissioner level.

The Commission would like to reassure all charities that decisions made by staff were based on facts as provided within the registration application and were considered to meet the legislative criteria as regards the definition of a charity. It is the level at which the decision was made that was considered by the Court, not the substance of any decision.

As highlighted above, a solution is being sought from the Department for Communities in order to permanently resolve the issue regarding decisions. Further information and guidance will be provided by the Commission as soon as possible.

As such, there is no need for charities to take any action regarding their registration at this time and they may continue to operate as previously. Furthermore, the Commission will be contacting as many charity funders and support bodies as possible in order to clarify the situation and request that this issue be taken into consideration when assessing applications from charities.

• Does this mean my charity is not registered?

If your charity was registered prior to the end of May 2019, the decision was made by a member of staff and not a panel of Commissioners and is therefore considered to be void at this time.

You do not need to take any action, and may continue to operate as normal. The Commission is working with the Department for Communities to seek a permanent resolution to the issue as soon as possible and will provide guidance on this once a way forward has been identified. The fact that you are a charity in law is not altered by your temporarily not being a registered charity.

• My funding is dependent on being a registered charity, how will this affect that? Should I inform my funding body of this?

The Commission will be contacting as many charity funders and support bodies as possible in order to clarify the situation and request that it be taken into consideration when assessing current and previous applications from charities. While we cannot direct funding and support bodies on decisions they may make, we hope this will provide some clarity and guidance to any assessments which are undertaken. Since you are still a charity in law, the technicality of the registration decision about your charity being void should not affect your ability to fundraise. If your funding application is rejected specifically because of this situation, please let us know and we will contact the funder.

• What should I do now – should I apply to be registered again?

You do not need to take any action at this time, and may continue to operate as normal. The Commission is working with the Department for Communities to seek a permanent resolution to the issue as soon as possible and will provide guidance on this once a solution has been agreed. 

• Can charities continue to use their charity registration number, for example NIC10002?

The Commission has no objection to charities continuing to use their registered charity number for the purposes of, for example, funding applications, as we are aware that some funders use it as a means of verification.

• Will the register of charities be deleted?

The Commission will be placing a note on the register of charities to highlight where an assessment on charity registration was previously carried out by Commission staff and has therefore been affected by the judgement. They remain charities in law operating in Northern Ireland whose charitable purposes and details should remain on the Commission’s website for the purposes of transparency and accountability.

• Why can’t the Board of Commissioners just register all charities retrospectively?

Up until the end of May 2019, charity registration applications were assessed by the Commission’s registration team having robustly reviewed the facts, as presented within the registration application. This was in keeping with the processes agreed by the Board of Commissioners based on an interpretation of the law at that time.

The Commission has a Board of seven, part time Commissioners. It is not feasible for the Board to undertake a review of the over 6,000 charity registration decisions which have been made up to the end of May 2019. However, the Commission is working with the Department for Communities to secure a resolution.

• Are charities still being registered?

While a resolution is being sought, the Commission’s work and oversight of the charity sector is continuing. The Commission has adjusted its procedures to comply with the court judgment.

This means that while some Commission decisions may be delayed and the volume of decisions made has been temporarily reduced, the public can be assured that work on applications, requests and queries is ongoing.

All organisations which have been contacted by the Commission to apply for charity registration, must submit their application as normal and by the set deadline. Our current target is to complete 60% of all registrations within six months of receipt of a completed application.

Charity registration and HMRC charity tax reliefs

• Can our charity make Gift Aid claims, if our registration is one which is void? 

Yes, as long as the charity is registered with HMRC and provides their HMRC charitable tax reference number when making a claim.

• Can our charity still apply for VAT relief if our registration is one which is void?

Yes, providing your charity has a valid letter of recognition from HMRC. To get VAT relief, a charity must provide suppliers with evidence that they are a charity in law. For charities in Northern Ireland this evidence is the letter of recognition which they will have received from HMRC.

• Will HMRC apply any conditions retrospectively if our registration is one that is void?

No. HMRC is aware that a solution is being sought from the Department for Communities in order to permanently resolve the issue regarding decisions made by Commission staff up until the end of May 2019. HMRC will not apply any conditions retrospectively provided the charity met all the required obligations at the time of registering with HMRC.

• Can we continue to avail of HMRC charity tax reliefs if our registration is one that is void?

Yes, provided your charity holds a valid letter of recognition from HMRC. This letter will have a HMRC charitable tax reference number normally beginning with X or NI.

• Will HMRC‘s gift aid claim forms still require a charity’s registration number?

The reference number which is required by the Gift Aid forms is the HMRC charitable tax reference number which HMRC will have provided to your organisation in your letter of recognition. This number will normally begin with the letters X or NI.

Annual reporting

Information submitted under the annual reporting programme continues to be displayed on the Commission’s website. However, as a result of the judgment, complications have arisen regarding charities registered prior to the end of May 2019 .

If your charity was registered after May 2019, and is therefore part of the group of charities not affected by the judgment as your registration decision was made by Commissioners, then you must file annual reporting information when your first deadline occurs, including your annual accounts and reports.

As a result of the judgment, some interim steps have been taken to address how annual reporting information is displayed. The Commission’s website no longer displays a status of ‘in default’, ‘due documents received late’ or ‘up to date’  for individual charity entries.

The Commission has also stopped automatic email notifications to affected organisations advising they have a legal requirement to file their accounts and reports or are in default of their annual reporting requirements.

As highlighted above, a solution is being sought from the Department for Communities in order to permanently resolve the issues regarding annual reporting. Further information and guidance will be provided by the Commission as soon as possible.

In the meantime, charities are encouraged to file their annual monitoring return with the Commission where possible, as submitting accounts and reports in accordance with the regulations is a matter of good practice.

This is particularly important for charities that currently prepare accruals accounts or fall within the audit threshold, as any subsequent accounts will require prior year comparatives and an audit of opening balances. It is therefore in your organisation’s best interest to continue to produce accounts and reports in line with current practices.

You must also still comply with all the terms of your governing document. For example, if your governing documents requires you to have audited accounts, then your accounts must be audited.

• Do I have to submit my annual accounts and reports to the Commission?

If your charity was registered prior to the end of May 2019, the Commission encourages you to continue to file accounts and reports with the Commission but will not mark you as ‘in default’ on the register if you do not submit the information.

However, if your charity was registered after May 2019, then you must continue to file annual reporting information in line with your deadline when it first arises, including annual accounts and reports submitted in the format outlined here.

• If I submit my accounts and reports, will they still be displayed?

Yes, the facility to file annual reporting information voluntarily with the Commission remains open and you can continue to file as previously.

The future of charity regulation

Up until the end of May 2019, the majority of the Commission’s decisions (excluding complex decisions, such as the institution of a statutory inquiry, which is authorised by members of the Board) were made at staff level, as authorised by the Board of Commissioners via procedural manuals.

The Commission has a Board of seven Commissioners, who work on a part time basis, and whose primary role is setting strategic direction and overseeing governance of the organisation. To have a Board or committee of Commissioners making every decision of the Commission would involve a radical change to the Commission’s structure, processes and budget.

Following the judgment of the High Court in May 2019, and the Court of Appeal in February 2020, the Commission has adjusted its procedures to comply with the court judgment. This means that while some Commission decisions may be delayed and the volume of decisions made has been reduced, the public can be assured that work on applications, requests and queries is ongoing. These arrangements will stay in place while we work with the Department for Communities as they identify how we should proceed in future.

This is a temporary solution only and allows for applications, requests and queries to be processed as usual by the registration team up to the point at which they could make a recommendation to Commissioners for decision. However, as Commissioners work on a part time basis, are not based at the Commission’s office and are also tasked with a range of other strategic oversight functions, they currently only have the capacity to make decisions on a smaller number of cases than was previously possible.

Following the judgment, the Commission is liaising regularly with the Department for Communities and will provide more information as soon as this becomes available. We will review and update the FAQs as new issues are identified.

ENDS