Returning and refusing donations guidance published this morning

After a long wait the Charity Commission has published new guidance “Accepting, refusing and returning donations to your charity”. The need for this guidance became very apparent in the aftermath of the President’s club scandal in 2018. A huge number of charities found themselves in receipt of funds from a charity that had been thoroughly discredited in the press. The Charity Commission in response issued some brief temporary guidelines and promised further guidance. It has now been published. This blog will guide you through the steps your charity should take if it wishes to refuse or return a donation.

The Commission’s starting point is that charities should accept donations: “donations are important to successfully delivering your charity’s purposes.” Then you must check that you have a power to return donations – this can be very generally expressed. Further rules will apply to restricted funds or special trusts.

However in 3 circumstances a charity has to, or is able to, return a donation. These are:

• Where a charity must return a donation
• Where the charity decides that to return/refuse is in the best interests of the charity;
• Under separate powers, either where:
  • Where a charity feels a moral obligation to make a payment but lacks the legal power and it is not in the best interests of the charity (an “ex gratia” payment);or
  • There is a failed appeal – too much or too little money has been raised.

When must a charity return or refuse a donation?

• Where the donation has come from an illegal source – terrorism or money laundering
• Where the donor lacks capacity
• Where the donor does not own the donation
• Where the terms of the donation require return i.e. In the event of unused funds  

The guidance has good signposting to further information about these circumstances.

What about the separate powers?

The ex-gratia rules come into force where:

• The trustees feel a moral obligation to make a payment;
• The charity does not have the power to do so; and
• The payment cannot be justified as in the best interests of the charity.

Trustees must decide if there is a clear moral obligation to make the payment, and then apply for Charity Commission permission.

The rules on ex gratia payments do not form part of the new guidance but are signposted here.

There are also separate rules on failed appeals, where too much money or not enough money has been raised. These rules are not set out in this guidance but are signposted to here.

When can a charity decide that to return/refuse is in the best interests of the charity?

The guidance sets out five circumstances where a return or refusal could be seen to be in the best interests of the charity.

• The purpose of the donation falls outside your charity’s objects;
• Where the donation comes with such severe conditions that to accept would compromise a charity’s independence;
• Accepting the donation is likely to result in a legal claim against the charity;
• the burdens associated with the donation outweigh the benefits of extra funds to the charity – e.g. a donated property with a huge mortgage;
• the donation gives rise to unacceptable levels of private benefit.

The Commission recommends that the charity should attempt to negotiate with the donor to make the donation acceptable – to align purposes, to give more flexibility as to how to use the donation, to reduce levels of private benefit to ‘incidental’. The Commission also advises that charities seek legal advice if they are unsure about refusing a donation in these circumstances.

How should a charity decide to refuse or return on the basis of ‘best interests’?

Firstly, it is reassuring to read that the Commission does not consider there to be a right or wrong answer, and that the requirement on trustees is that they should reach a decision that is “rational and reasonable”.

Trustees should make the decision, taking into account:

• their duties as charity trustees;
• the principles for good trustee decision making;
• the best interests of the charity.

The guidance expands each of these considerations quite extensively. This will be useful to trustee boards in the future when attempting to make these decisions.

The Commission requires trustees to make a “a careful balancing exercise”, taking into account the risks, benefits and not permitting “yours or others’ personal motives, opinions, or interests to affect your decision”. The decision has serious consequences. Trustees should be permitted to challenge and discuss, sufficient time must be given to the decision and evidence and minutes must be recorded.

And finally

If trustees follow the steps set out in the guidance, there should be no possible challenge to their final decision. The Commission will only intervene if the trustees have not:

• acted within their powers;
• complied with the duties of charity trustees;
• balanced all relevant factors and disregarded irrelevant factors; and
• acted in the best interests of their charity.

These are new guidelines, where before we had very little guidance, and they will take time to become familiar. We would be very happy to help guide trustees through the process of refusing or returning donations. If you have any questions get in touch with Neil Burton [email protected]