Guernsey's new charities legislation: Cause for action

Purpose of the new legislation

The new legislation is intended to achieve three objectives, to:  

1. promote accountability, integrity and public confidence in the administration and management of the charitable sector in Guernsey;
2. meet international standards aimed at preventing the third sector from being abused for criminal purposes; and 
3. give comfort to donors that their donations will be used to achieve the purposes of the charity.  

Organisations within the scope of the legislation

Not all apparently charitable organisations will fall within the scope of the legislation.  If an organisation's purposes are charitable and it provides benefit to the public or a sector of the public then it will be subject to the legislation although may not be required to register if it does not meet the financial resources test.

What is a charitable purpose?

The legislation expands the definition of what amounts to charity as a matter of Guernsey law to extend beyond the traditional Pemsel case (1891) definitions[i] (which is the current Guernsey law) to include, for example, the advancement of arts, heritage, culture or science, the saving of lives and environmental protection.  If an organisation does not exist primarily for one of the purposes specified in the legislation it is not a charity and is therefore not subject to the legislation.

Requirement to register

The legislation introduces, for the first time in Guernsey, an obligation to register certain charities with the Registrar of Charities.  Any charity that has gross assets of £100,000 or more, or a gross annual income of over £20,000 must be registered unless the charity does not solicit donations from the public.  A charity solicits donations from the public if it applies for sponsorship, grants or donations from the public: collecting money only from members of the organisation, such as membership fees payable to a club, does not amount to raising funds from the public.   As such many private charitable trusts and purpose foundations will not be obliged to register.

A charity that raises or distributes assets abroad must register even if it does not satisfy this financial test. 

Charities that are not required to register may do so voluntarily.  A charity that chooses not to register is not subject to the legislation's obligations.  However, many organisations may choose to register voluntarily as exemptions under the Income Tax (Guernsey) Law 1975 income tax legislation are only available to registered charities.

Obligations on registered charities

A registered charity is subject to certain obligations under the legislation.  Many charities may already be operating in a way that complies with the new obligations but each charity should undertake a review to ensure compliance.  Particularly for smaller charities adjustments may need to be made to the composition of the management team and operating procedures to achieve compliance.

Some key obligations are:

1. to have a written constitution that includes the specified information.  Charities established as companies or trusts are highly likely to have such a document already however older charities and charities such as churches are less likely to have an existing written constitution and may be required to draft a constitutional document;
2. to have a minimum of three managing officers who are independent of each other (for example, not related), an obligation that is more likely to be burdensome to small charities and in respect of which consideration should be given now as to  whether additional people need to be appointed as managing officers to satisfy this requirement;
3. to keep particular records;
4. to verify the identity of certain donors; and
5. provisions aimed at financial probity and transparency, including obligations regarding the approval of payments by two people before they are released.

The legislation includes some helpful exemptions from the obligations outlined above but these are of limited scope and so it should not be assumed by any charity that they can be relied on without careful investigation.

Conclusion

The new legislation should help to professionalise the charitable sector in Guernsey and for many Guernsey charities will have little practical impact but for some the impact will be significant.  Navigating the new legislation and ensuring compliance will require careful attention and the taking where appropriate of legal advice.  Charities should take action now to ensure they are best placed to continue their good work.

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