Charities Act 2022 Ex Gratia payments: an update

The Charities Act 2022 (the Act) received Royal Assent in February 2022 with its provisions being brought into force in three phases: October 2022, June 2023, and the final tranche in March this year. However, one issue in particular that has been delayed relates to the new provisions allowing charities to make ex gratia payments without Charity Commission consent. Lauranne Nolan, Associate and Safeguarding Lead in the Keoghs specialist abuse team, considers this further.

What is an ex gratia payment?

An ex gratia payment is a payment that a charity wishes to make, but there are no powers available to permit the payment and it cannot be justified as being in the best interests of the charity. Currently, a payment of this nature requires Charity Commission consent with permission only being granted where “it can be fairly said that if the charity were an individual it would be morally wrong of him to refuse to make the payment”. Examples of ex gratia payments include a bonus for a staff member on retirement and restitution of an item to its country of origin, or, in the cases we often see, payment towards therapy or requests for financial support from a victim or survivor of abuse.

The current position

Charity trustees have a duty to use the funds of their charity only for the purpose of pursuing the charity’s charitable purposes. An ex gratia payment is not considered to be part of the charitable work of the charity so it has no legal obligation to make one.

Section 106 of the Charities Act 2011 permits the Charity Commission to authorise a payment that in normal circumstances the trustees have no authority to make but consider themselves under a moral obligation to do so. Applications to the Commission for authority to make an ex gratia payment must be applied for by the trustees. It involves the completion of an online form where the trustees must provide clear and impartial evidence to explain why they consider they are under such a moral obligation.

New powers

 The Act proposes to allow charities to make ex gratia payments up to a certain level without Commission consent by way of the following:

The proposed provisions are to be set out in sections 15 and 16 of the Act and permit charity trustees to make small ex gratia payments without prior authorisation where:

1. The value of the ex gratia payment does not exceed “the relevant threshold” as set out in the table above;
2. The charity trustees have no power to make the payment other than via the new statutory power; and
3. In all circumstances, the charity trustees could reasonably be regarded as being under a moral obligation to take the action. The relevant question is no longer whether the trustees themselves feel that there is a moral obligation, but whether they could reasonably be regarded as being under a moral obligation.

The delay

The implementation of the proposed provisions has been delayed because of concerns that national museums would be able to return items to their country of origin without Commission involvement (restitution). According to the Department for Culture, Media and Sport (DCMS): “Charity Commission oversight of these cases provides an important assurance that the charity’s trustees have undertaken proper due process in reaching their decision.”

DCMS and the Charity Commission announced modifications to the new provisions in March 2024:

• National museums and galleries (not listed or defined at this stage) will always require Charity Commission consent to make an ex gratia payment or transfer.
• All ex gratia payments or transfers from a UK charity to a recipient overseas will also require Charity Commission consent.

Conclusion

There is no set date for when the provisions are to come into force other than ‘later in 2024’. What is clear is that the proposed changes will remove considerable administrative burdens for charities and their trustees when dealing with ex gratia payments and streamline a process that many consider is often disproportionate to the value of the payment itself.

There has been some disappointment shared that the new provisions do not apply to all ex gratia payments; however, the Law Commission and the Government have been clear that they consider the relevant thresholds to provide a reasonable and proportionate safeguard to protect charitable assets. In addition, the new statutory power may be expressly restricted or excluded in a charity’s governing document, which would retain the need for charity trustees to seek prior authorisation from the Commission before making an ex gratia payment.

To prepare for the implementation, charity trustees should ensure:

• They understand the new statutory power to make ex gratia payments and in particular, the need to remain vigilant in relation to the thresholds relevant to their charity (which may be subject to change either downwards or upwards depending on the charity’s income year on year);
• Consider whether they wish to amend their governing documents to exclude the proposed new statutory power;
• Consider whether to delegate decisions about making small ex gratia payments;
• That whoever makes the decision regarding the payment, all ex gratia payments need to be appropriately recorded and detailed in the accounts; and
• Consider implementing an ex gratia policy specific to the charity setting out the process in anticipation of future requests which may increase due to media attention and public awareness of the new provisions.

Charities should be alive to the fact that even when an individual requests and receives a payment under the above provisions they are still permitted to bring a civil claim. It is, therefore, important for trustees to be aware that if a person is seeking financial compensation, they are obliged to refer the matter to insurers/seek legal advice so as to not potentially compromise indemnity in the future.