How to write your governing document

1E5E7A25-514D-48D9-9803-2C0D88FF57C1Governing document templates

Use one of the Charity Commission’s model governing documents, either:

  • as a template (recommended) – this makes it easier to register your charity
  • as a reference – to see what a governing document looks like and what it must contain

Start by choosing the right governing document for your charity type:

  • constitution (for unincorporated associations)
  • charitable incorporated organisation (CIO) foundation or association constitution (for CIOs) – see below
  • memorandum and articles of association (for charitable companies)
  • trust deed or will (for trusts)

If you use a model governing document, complete the template in full. Select all of the options that apply to your charity, and sign and date it where required.

If you’re setting up a charity associated with a national organisation, it may have its own governing document template you should use. You must use that template in full without changing or adding to it. Alternatively, ask your national organisation if you can use one of the commission’s model governing documents instead.

What governing documents need to contain

Only write your own governing document if there isn’t a template that’s right for your charity. If you apply to register your charity, the commission will expect your governing document to contain certain sections (‘provisions’ or ‘clauses’):

Section What it needs to contain
Name Your charity’s name and (in the case of a trust or an unincorporated association) power to amend the name
Objects What your charity is set up to achieve (its purposes must all be charitable for the public benefit)
Powers What the trustees can do to carry out its purposes (for example, raising funds, buying and selling property, borrowing money, working with other organisations)
Charity trustees How many trustees there are, who can be a trustee, how they are appointed, how long they can hold office and if they can be reappointed
Charity meetings and voting How many meetings are needed, how they are arranged, how a chair is appointed, how votes are made and counted (including minimum numbers for this)
Membership (if applicable) Who can be a member, age restrictions, ending someone’s membership, how membership meetings are called
Financial How the charity meets its legal accounting requirements, who controls the bank account, who can sign cheques and if two signatures are needed, other internal financial controls
Trustee benefit How trustees must not benefit from the charity (excluding reasonable expenses) without commission approval or unless it is authorised in the governing document
Amendments (if applicable) How the trustees can change the charity’s governing document, when commission approval is needed, how amendments are recorded
Dissolution When the charity can be closed, what happens to any remaining assets (charitable assets can only be used for charitable purposes)

Restrictive covenants: compromise agreements

compromise agreementWhen an employment is terminated the employee may enter into an agreement with the former employer to accept a payment “in full and final settlement” of all of the outstanding claims against the employer. In doing this, the employee accepts that the sum payable satisfies claims and legal rights that arise either under the terms of the employment or statutory provisions. The employee therefore gives up his or her rights to pursue claims before an Employment Tribunal or in the courts. Agreements of this kind find their origins in The Trade Union Reform and Employment Rights Act (1993). This legislation refers to “compromise contracts or agreements” which bind both parties to the agreement.

By agreeing not to pursue claims before a Tribunal or Court, the employee is giving an undertaking that restricts conduct. It follows that any sum given in respect of that undertaking falls within Sections 225 to 226 ITEPA 2003 (see EIM03601). Such a sum is not within the terms of Statement of Practice 3/1996 (see EIM03610) because the parties themselves are attributing a value to the undertaking. So where the agreement attributes a specific sum to this undertaking it is taxable.

Such an attribution is not very common. Usually, no specific sum is attributed to this undertaking in the agreement so there is no charge in respect of it.

Compromise agreements often contain a “repayment clause”. Such a clause provides that if the employee does later initiate proceedings before a Tribunal or Court – despite signing the agreement – then the sum paid under the agreement must be repaid to the employer. In a normal case, do not argue that such a clause means that a sum is being attributed to the undertaking not to pursue claims. In virtually all cases, the sum paid under the agreement can be fully attributed to settlement of the claims being dealt with. So there is no sum remaining to be attributed to that undertaking, even where there is a repayment clause.

If the employee does repay such sums, there is no provision in the legislation that gives any deduction for that payment.

Can a charity have a political purpose?

Charities and the LawTo be a charity, an organisation must be established for charitable purposes only, which are for the public benefit.  A charity cannot have a political purpose.  Nor can a charity undertake political activity that is not relevant to, and does not have a reasonable likelihood of, supporting the charity’s charitable purposes.   An organisation will not be charitable if its purposes are political

Whilst a charity cannot have political activity as a purpose, the range of charitable purposes under which an organisation can register as a charity means that, inevitably, there are some purposes (such as the promotion of human rights) which are more likely than others to lead trustees to want to engage in campaigning and political activity.

Here are some examples which might illustrate what would be accepted or rejected by the Charity Commission

Example 1

An organisation set up to oppose a new runway at an airport applies for charity registration. The commission would reject the application as having a political purpose, as it would oppose the government’s policy on airports.

Example 2

An organisation set up to protect the environment applies for charity registration. The organisation carries out a range of activities, including some political activity aimed at securing a change in the government’s policy on airports. The commission would accept the application if it was clear that securing a change in government policy was not the continuing and sole activity of the charity, but part of a wider range of activities aimed at furthering its charitable purposes.

Example

An organisation which has been established to protect life and property by the prevention of all abortions applies for charity registration. Since the purpose can only be achieved through a change in law, the commission would reject the application as having a political purpose.

More details can be found here

Changing Your Charity’s Financial Year

You cannot change your charity’s financial year or period if your latest annual return and accounts (if required) are overdue.

charity collecting tinRules for charities that are not companies

If your charity is a charitable incorporated organisation (CIO) or unincorporated (not a company) you can change the financial year or period to run for more or less than 12 months.

It needs to be a minimum of 6 months, and no longer than 18 months.

You can only:

  • change the dates for your current financial year
  • make a change once every 3 years

Changing your financial year or period will also change your deadline for filing the annual return and accounts.

Rules for charities that are companies

If your charity is incorporated (a company) you can shorten your financial year or period as often as you’d like.

The minimum period you can shorten it to is 1 day.

You can lengthen your company’s financial year to a maximum of 18 months, but this can only be done once every 5 financial periods.

Rules for newly registered charities

If your charity is newly registered, and you have not submitted an annual return you will need to request permission to change your financial year.

To sign in and change your financial year you will need your:

This password gives people in your charity access to detailed information about your charity and individuals connected with it.

When giving access to this password you need to have measures in place to make sure the system is only used for proper purposes, and that the information accessed through the Commission’s services will be treated carefully and sensitively and in accordance with legal requirements including the General Data Protection Regulations (GDPR).

Read the privacy notice before you use the service.

Know Your Charity’s Financial Position

Set a budget and follow it

Your charity should have a budget.  Check that it is being used.  It helps make sure you have realistic plans based on how much money your charity:

  • currently has
  • plans to raise
  • plans to spend each year

By checking how much your charity receives and spends against the budget, you can identify problems in good time and agree what to do about them.  It’s particularly important to do this where you see big differences between the budget plans and what is actually being spent.

Mr Claw Cover

 

Our publication Mr Claw in the World of Charity Accounting explains charity budgeting and planning in more detail.  We still have a few copies available, so contact us here if you would like a copy.

Get the funds you need

Your charity may get the funds it needs in different ways.

This can include:

Make sure you know what the rules are for getting funds in these ways and that your charity complies with them.

If your charity does not spend all its income

Check that your charity has a reserves policy.  This explains whether your charity is aiming to keep a reserve of unspent income, what it will be used for and why this is reasonable.  Check that your charity sticks to the policy or can explain why if it does not.

Make sure that your charity’s annual report explains the policy and says how much money (if any) it has kept in reserve, what it is for and when the charity will use it.

If you want more information on Reserves, see the Charity Commission’s guidance here

Making Debt Deductions From An Employee’s Pay

COURTORDERPICYou have to make deductions from your employee’s wages if a court orders you to. This could be to pay off:

  • unpaid maintenance payments
  • a county court judgment

How it works

  1. You’ll get a document from the court telling you to make deductions from your employee’s pay.
  2. Work out how much you have to deduct each time your employee is paid.
  3. Start making deductions the next time you pay your employee. Pay them their reduced wages on their normal payday.
  4. Make the payment to the court.
  5. Stop making deductions when the debt has been paid off.

You and your employee can be fined if you do not deduct their wages, or if you deliberately give false information about their earnings.

Full details can be found here

Charity Trustee – Declaration of Eligibility and Responsibility

National Living and Minimum Wage Rates Increase April 2021

WagesThe Government announced at the end of  November 2020 the National Living Wage (NLW) and National Minimum Wage (NMW) rates which will come into force from April 2021.

It accepted in full recommendations made by the Low Pay Commission at the end of October 2020

The National Living Wage, ie for those aged 25 and over, will increase by 2.2 per cent from £8.72 to £8.91, and will be extended to 23 and 24 year olds for the first time.

For workers aged under 23, Commissioners recommended smaller increases in recognition of the risks to youth employment which the current economic situation poses.

Rate from April 2020 Rate from April 2021 Increase
National Living Wage £8.72 £8.91 2.2%
21-22 Year Old Rate £8.20 £8.36 2.0%
18-20 Year Old Rate £6.45 £6.56 1.7%
16-17 Year Old Rate £4.55 £4.62 1.5%
Apprentice Rate £4.15 £4.30 3.6%
Accommodation Offset £8.20 £8.36 2.0%

You can read the Low Pay Commission 2020 summary of findings here

Statutory Sick Pay and COVID-19

February | 2020 | Derby Community Accountancy ServiceIf you cannot work because of coronavirus (COVID-19)

You could get SSP if you’re self-isolating because:

You can also get SSP if both of the following apply:

You cannot get SSP if you’re self-isolating after entering or returning to the UK and do not need to self-isolate for any other reason.

You could get SSP for every day you’re off work.

Further details can be found here

FURLOUGH – Coronavirus Job Retention Scheme Changes

FurloughThe Coronavirus Job Retention Scheme will close on 31 October 2020.

From 1 August 2020, the level of grant will be reduced each month

The table below shows Government contribution, required employer contribution and amount employee receives where the employee is furloughed 100% of the time.

Wage caps are proportional to the hours not worked.

  July August September October
Government contribution: employer NICs and pension contributions Yes No No No
Government contribution: wages 80% up to £2,500 80% up to £2,500 70% up to £2,187.50 60% up to £1,875
Employer contribution: employer NICs and pension contributions No Yes Yes Yes
Employer contribution: wages 10% up to £312.50 20% up to £625
Employee receives 80% up to £2,500 per month 80% up to £2,500 per month 80% up to £2,500 per month 80% up to £2,500 per month

More information can be found here