Trustees’ Duties: Summary

 

1. Appointment of Trustees

Trustee must be at least 16 years old for a charitable incorporated organisation (CIO), or at least 18 to be a trustee of any other charity. Trustee must be properly appointed following the procedures and any restrictions in the charity’s governing document. A person must not act as a trustee if disqualified before, unless authorised to do so by a waiver from the Commission. Until 31 July 2018, the reasons for disqualification include:

    • having an unspent conviction for an offence involving dishonesty or deception (such as fraud);
    • being bankrupt, or entering into a formal arrangement (eg an individual voluntary arrangement) with a creditor;
    • removal as a company director or charity trustee because of wrongdoi

New reasons for disqualification (e.g. sex offenders) were added on 1 August 2018.

Charities that want to claim UK tax reliefs and exemptions (e.g. Gift Aid) must meet the management condition in the Finance Act 2010. This requires all of the charity’s managers (including trustees) to be ‘fit and proper persons’ (see the HM Revenue and Customs guidance). Trustee of a charity that provides ‘regulated activity’ for children or adults would require a DBS clearance (see safeguarding and DBS checks).

The governing document specifies the rules about:

    • who appoints new trustees;
    • when, and how, new trustees are appointed;
    • who can be a trustee - the governing document may impose conditions;
    • how long appointments last and whether a trustee can be re-appointed;
    • how trustees can resign or be removed;
    • companies must comply with company law provisions for appointing and removing dire

CIOs must include provisions in their constitutions for appointment and removal of trustees. When charities recruit new trustees, they should ensure new trustees who do not have serious conflicts of interest, or getting Commission consent and putting procedures in place to manage the conflicts.

 

2. Charitable purposes and public benefit

All charities must be for the public benefit (with “public” and “benefit” interpreted according to the Charity Commission’s guidance). Trustees must have regard to the Commission’s public benefit guidance PB1, PB2 and PB3 when making decisions. This would include reviewing the charity’s activities or considering new ones. The trustees must ensure that the charity is carrying out its purposes for the public benefit, and no other purpose. This means the trustees should:

    • understand the charity’s purposes as set out in its governing document;
    • plan what the charity will do, and what to achieve;
    • be able to explain how all of the charity’s activities are intended to further or support its purposes;
    • understand how the charity benefits the public by carrying out its purpo

Spending charity funds on the wrong purposes is a very serious matter; in some cases trustees may have to reimburse the charity personally.

Some charities produce ‘mission statements’ or other summaries of their aims and activities. When checking the scope of the charity’s objects or powers, be careful not to rely on such statements instead of the charitable purposes set out in the governing document, as the wording may be less precise. To check whether the charity can lawfully undertake a particular activity, one should check against the objects clause rather than any other statement of the charity’s mission or aims. Otherwise, one might end up carrying out activities in breach of the charity’s governing document.

The trustees should review the charity’s objects from time to time and make sure that they are still appropriate, relevant and up to date. Circumstances change over time and this could affect whether:

    • the charity’s beneficiary group still exists, and is still a ‘sufficient section’ of the public;
    • the geographical ‘area of benefit’ in which the charity can operate is still relevant;
    • the need that the charity was set up to meet still exists, and meeting it is still for the public benefit;
    • there may be better ways of meeting the need for which the charity was set

If the charity’s objects are no longer effective, one must consider how these could be changed or take other action to enable the charity’s resources to be applied for its purposes. Governing documents are legal documents. One must follow the correct procedures to amend them, and it is important to word any changes correctly. Trustees should consider taking appropriate advice about any changes.

 

3. Governance and the law

Governing documents are legal documents.  The trustees must make sure that the charity complies with the governing document, which usually contains key information about:

    • what the charity exists to do (its purposes, as explained in its objects clause);
    • what powers it has to further its objects;
    • who the trustees are, how many trustees there should be and how they are appointed and removed;
    • whether the charity has members and, if so, who can be a member;
    • rules about trustees’ (and members’) meetings; how they are arranged and conducted; how decisions must be made and recorded, and so on;
    • how to change the governing document;
    • how to close the charity do

There may also be rules limiting how powers can be used, who can vote at meetings, or which rules can be changed.

All charities must keep proper financial records and prepare annual accounts. Trustees must arrange for accounting books and records (including cash books, invoices and receipts) to be kept for at least 6 years (or at least 3 years in the case of charitable companies); where Gift Aid payments are received records will need to be maintained for 6 years with details of any substantial donors and to identify ‘tainted charity donations’ in accordance with HMRC guidance.

All registered charities must send an annual return (or annual update) and other information to the Commission. A registered charity must state that it is a registered charity on any fundraising documents and on many of its financial documents, including cheques, invoices and receipts. This includes electronic documents such as emails and websites. It is a good practice to state the charity’s registration number.

 

4. Act in the charity’s best interests

The trustees must:

    • decide what will best enable the charity to carry out its purposes;
    • make balanced and adequately informed decisions, thinking about the long term as well as the short term;
    • avoid putting oneself in a position where one’s duty to the charity conflicts with personal interests or loyalty to any other person or body;
    • not receive any benefit from the charity unless it is properly authorised and is clearly in the charity’s interests.

Conflict of interests

A conflict of interest is any situation where personal interests could, or could appear to, prevent the trustee from making a decision only in the charity’s best interests. For example, if the trustee (or a person connected to trustee, such as a close relative, business partner or company):

    • receive payment from the charity for goods or services, or as an employee;
    • make a loan to or receive a loan from the charity;
    • own a business that enters into a contract with the charity;
    • use the charity’s services;
    • enter into some other financial transaction with the

Even when the trustee receives no financial benefit, the trustee could have a conflict of loyalty. For example if the charity has business dealings with the trustee’s employer, a friend, family member, or another body (such as a local authority or charity, or a charity’s trading subsidiary) that the trustee serves on.

This means the trustees:

    • should identify, and must declare conflicts of interest (or loyalty);
    • must prevent the conflict of interest (or loyalty) from affecting the decision;
    • should record the conflict of interest (or loyalty) and how it was dealt with;

How the trustee prevents a conflict of interest from affecting a decision will depend on the circumstances and the seriousness of the conflict of interest, and according to the governing document. If a trustee (or a person connected to a trustee) stands to benefit directly or indirectly, the conflicted trustee(s) should withdraw from the discussion and decision making process. If the non-conflicted trustees can demonstrate that a conflict of loyalty involves no material benefit and poses a low risk to decision making in the best interests of the charity, they may permit the affected trustee to participate.  For the most serious conflicts of interest, it may mean obtaining permission from the Commission, deciding not to proceed with a proposal or even resigning as a trustee.

Payments and other benefits to trustees

Charities cannot usually pay their trustees. The trustees usually volunteer services and receive no payment for the work. This is called the voluntary principle. The trustees can, however, reclaim reasonable expenses that incurred such as travel and childcare - being a trustee should not mean being out of pocket. These restrictions apply to trustees (or someone with a financial connection to a trustee, such as their partner, dependent children or a business partner) benefiting by:

    • supplying goods or services to the charity g. building work or specialist services, even if the trustee offers better value or expertise than other suppliers;
    • being employed by the charity or by a trading subsidiary owned by the charity;
    • receiving material benefits as a beneficiary of the charity;
    • being paid to act as a trustee; this is very unusual and only permitted in exceptional circumstances;
    • entering into a property transaction (or any other financial transaction such as a loan) with the charity - this is called self-dealing;

In some circumstances, one or more trustees (or persons with a financial connection to a trustee) do receive payments or other benefits from their charity. This is only permitted if:

    • the benefit is specifically authorised by the governing document, the Charities Act (or other relevant legislation), the Commission or the courts; any specified procedures must be strictly followed;
    • even if the benefit is authorised, the non-conflicted trustees are satisfied that allowing it is in the charity’s best interests;
    • the conflict of interest is managed; so in most cases the conflicted trustee(s) cannot be involved in the decision and only a minority of trustees can bene

 

5. Managing Risks & Resources

Trustees must exercise the duty of prudence and act responsibly, reasonably and honestly.  Prudence is about exercising sound judgement. The trustees must:

    • make sure the charity’s assets are only used to support or carry out its purposes;
    • avoid exposing the charity’s assets, beneficiaries or reputation to undue risk;
    • not over-commit the charity;
    • take special care when investing or borrowing;
    • comply with any restrictions on spending funds or selling la

The trustees should put appropriate procedures and safeguards in place and take reasonable steps to ensure that these are followed.  Otherwise, the trustees risk making the charity vulnerable to fraud or theft, or other kinds of abuse, and being in breach of duty.  Many charities come into contact with those who may be experiencing, or at risk of, abuse or neglect. This includes:

    • children and young people under 18 years of age
    • adults (aged 18 and over) at risk

Even where work with children or adults at risk does not form part of the core business of the charity, trustees must be alert to their responsibilities to protect from risk of harm those with whom the charity comes into contact.

Charities and their trading subsidiaries

Charities need to use a trading subsidiary if they carry out commercial (non-charitable) trading which exceeds the threshold for paying income or corporation tax, or involves significant risk.  A trading subsidiary is a separate company controlled by the charity. The charity can raise money from trade without exposing its assets to risk or being liable for income or corporation tax.

There are, however, risks which trustees need to be aware of and manage:

    • the charity exists for charitable purposes, but the trading subsidiary exists to generate income; their aims and interests are different; the trustees need to distinguish between them;
    • if the trading subsidiary starts to fail, the charity must not bail it out; this would be putting the charity’s funds at risk;
    • charity trustees who are also directors of the subsidiary have a conflict of interest;
    • if a charity trustee is also a director of the trading subsidiary, the restrictions on payments and benefits to trustees also apply to any payments or benefits as a dire

6. Duty of Care

The trustees must use their skills and experience to inform decision making and benefit the charity. For example, the Trustee Act 2000 says that trustees must “exercise such care and skill as is reasonable in the circumstances”. What is reasonable in the circumstances will depend on any special knowledge or experience that the trustee has or claims to have. It also depends on whether a trustee is acting in a professional or paid capacity, and what it would be reasonable to expect such a person to know.  The Trustee Act 2000 applies to trustees of unincorporated charities. Company law and the Charities Act impose similar duties on directors of charitable companies and trustees of CIOs. In addition, all trustees have a general duty of care which they must apply to all aspects of their role.

 

7. Complying with accounting requirements

All CIOs must prepare and file an annual return form and trustees’ annual report in accordance with the Statement of Recommended Practice - Accounting and Reporting by Charities (Charities SORP). Failure to submit accounts and accompanying documents to the Commission is a criminal offence. Those trustees who sign the trustees’ annual report and accounts are signing on behalf of the whole trustee body so all of the trustees are responsible for the accounts. Companies must also submit accounts and annual returns to Companies House annually.

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