Official Report: Minutes of Evidence

Mr Bradley: I declare an interest as a trustee of the Harry Gregg Foundation.

The Chairperson (Mr Gildernew): No problem, Maurice; thank you.

I welcome Ms Colleen Bell, head of the charities policy and legislation team in the Department for Communities; Mr Martin Ireland, deputy principal in the charities policy and legislation team; and Mr Gerard Reilly, from the charities policy and legislation team. I invite Colleen to make a brief opening statement, after which we will go to questions from members.

Ms Colleen Bell (Department for Communities): Good morning, Chair and Committee members, and thank you for the opportunity to provide a further update on the Charities (Amendment) Bill. Today's briefing follows the Department's earlier pre-introductory engagement with the Committee on 26 March. We are here to provide an update on the Bill following the public consultation on the draft legislation.

As members will recall, the Bill is intended to amend the Charities Act (Northern Ireland) 2008 in order to strengthen and modernise aspects of the charities regulatory framework, improve proportionality and reduce unnecessary administrative burdens, particularly for the smallest charities. Following Executive agreement on 26 March, the Department consulted publicly on the draft Bill and the accompanying explanatory and financial memorandum between 27 March and 24 April. The consultation received 39 responses from 31 organisations and eight individuals. Overall, the responses were broadly supportive of the Bill's direction of travel, particularly in relation to strengthening regulatory powers where necessary, increasing proportionality and reducing burdens on the smallest charities.

A number of respondents raised helpful points on particular provisions, which Gerard will take you through shortly. Issues were raised on the expansion of the Charity Commission's information-sharing powers, similar to those that were raised during our pre-introductory briefing to the Committee. Having considered the consultation feedback, the Department made a number of targeted amendments before seeking Executive agreement to proceed with introduction. We are finalising the consultation response report, and we anticipate sharing that with the Committee before the Assembly reconvenes after the summer recess.

The key point that we want to emphasise today is that the Bill's overall policy intent has not changed. The Bill remains focused on three broad aims: to strengthen the Charity Commission's regulatory powers; to streamline accounting and reporting requirements; and to repeal section 167 of the 2008 Act, which has never been commenced and is unworkable in practice. The amendments that were made after consultation are intended to improve clarity, proportionality and consistency in how those aims are delivered.

I will hand over to Gerard Reilly who will take you through the main changes following the consultation.

Mr Gerard Reilly (Department for Communities): Thank you, Colleen. Good morning, Chair and members. As Colleen outlined, the consultation helped to refine the Bill. While there was broad support for its overall direction, respondents identified a number of areas where the draft legislation could be improved before introduction. I will briefly outline the main changes that were made as a result.

The first of the amendments relates to clause 2, which deals with the disclosure of information by the Charity Commission. Consultation responses, particularly from legal bodies and larger charities, expressed concern that the provision, as drafted, could be interpreted too broadly and could create uncertainty around the scope of the commission's information-sharing powers. In response, the Department has narrowed the provision; rather than creating a wider general power, disclosures will continue to be limited to public bodies and officeholders, as is the case currently under the 2008 Act. However, the Bill now clarifies that a public body includes bodies that exercise functions of a public nature, including regulatory functions relating to charities or fundraising. The amendment addresses a practical issue concerning information-sharing with the fundraising regulator, while avoiding any unnecessary widening of powers.

The next change relates to the official warning power. The consultation respondents generally supported the introduction of such a power as a proportionate regulatory tool. However, they emphasised that, where a warning has been published and is later withdrawn because the charity has addressed the issues that were identified, there should be a mechanism to publicly reflect that. The Bill has, therefore, been amended to require the commission to publish a withdrawal notice within 28 days where a published warning has been withdrawn. That measure supports fairness and proportionality by ensuring that charities are not left with a warning on public record once compliance has been restored.

A further amendment concerns the application of the official warning power to designated religious charities. The consultation did not support the proposal to exclude those charities from the warning regime. Respondents considered that such an exception could create inconsistency and undermine confidence in the regulatory framework. Designated religious charities will continue to retain their distinct status under charity law, including exemptions from certain intervention powers that are available to the commission. However, following the consultation, the Bill now applies the official warning power consistently across all charities. The Department considers that to be a fairer and more proportionate approach, which strengthens confidence in the regulatory system, while benefiting designated religious charities by giving them access to the same lower-level regulatory tool that is available to other charities. It will allow issues to be addressed at an earlier stage and, potentially, avoid the need for formal intervention.

The next amendment relates to clause 7, concerning dispensations from accruals accounts, where a charity exceeds the £250,000 income threshold because of an exceptional, one-off income. Respondents supported the principle of a dispensation mechanism but stressed the importance of timely decisions so that charities would know where they stood before statutory reporting deadlines approached. The Bill was, therefore, amended to enable regulations to specify a period within which the commission must communicate decisions once all relevant information has been received. However, the commission has subsequently raised concerns about the practical implications of statutory decision-making time frames, given current resource constraints. The Department is, therefore, working closely with the commission to develop an alternative delivery model that can achieve the same policy objective while placing fewer demands on resources. As clause 7 will be implemented through regulations, those regulations will be consulted on before being finalised. Officials will also be happy to brief the Committee on the proposed content and operation of the regulations before they are made.

The final substantive amendment concerns clause 8, which deals with the independent examination requirements for very small charities. The draft Bill that was consulted on proposed a two-part threshold that was based on income and asset elements. Respondents highlighted the fact that that could create unnecessary complexity as charities below the income threshold might still need to value assets simply to determine whether an independent examination was required. As that would run counter to the policy objective of reducing the administrative burden for such charities, the Bill has been amended to remove the asset threshold and retain a simpler income-based approach. A related amendment to clause 13 allows that provision to be commenced by order, which will give the commission time to prepare for implementation.

Taken together, the changes do not alter the Bill's overall purpose; rather, they make it clearer, more proportionate and more workable in practice. They narrow the information-sharing provisions, strengthen procedural fairness around official warnings, ensure more consistent regulation across the sector and simplify requirements for smaller charities.

I will now pass back to Colleen.

Ms Bell: Thank you, Gerard.

The consultation was valuable in refining the Bill. The amendments made improve legal certainty, consistency and proportionality while maintaining the Bill's original objectives.

The rural needs impact assessment was revised following feedback from rural charities and representative bodies. It now better reflects the challenges faced by small volunteer-led rural organisations and recognises that measures such as reducing independent examination requirements may provide benefits while acknowledging the greater impact that governance changes and regulatory interventions can have on rural communities. The revised rural needs impact assessment will be published with the consultation responses document and shared with the Committee, although we are happy to provide members with early sight of the impact assessment if they wish.

The Department considers this to be a focused Bill that modernises charity regulation, maintains public confidence and reduces unnecessary administrative burdens, particularly for smaller charities, while retaining appropriate safeguards.

We are happy to take questions.

The Chairperson (Mr Gildernew): Thank you for that. I have a couple of questions, and then we will go to questions from members.

Many charities operate across multiple jurisdictions and receive funding from a variety of sources. How will the Department ensure that reporting requirements provide sufficient transparency about income generated in the North compared with funding received from elsewhere?

Ms Bell: The easements in reporting mean that all registered charities will still be required to report but it will be a simpler template for those under £20,000. They will still be required to show their income and outgoings. It is not that that transparency will go; it will just be simpler for small charities. It will still be visible in the public register.

The Chairperson (Mr Gildernew): OK. Thank you.

Given that the South has increased its audit threshold to, I think, €500,000 through its Charities (Amendment) Act 2024, have you had engagement with the Department on how that might have an impact North/South?

Ms Bell: Is that the audit threshold for accruals accounts?

The Chairperson (Mr Gildernew): Yes.

Ms Bell: We intend to make a recommendation to the Minister on that, in the coming weeks, hopefully. That is not to do with the Bill; it would be secondary legislation. It could be made by order, so it could be done in this mandate if it is felt fit to do so in the North.

The Chairperson (Mr Gildernew): OK. Thank you.

On the repeal of section 167, is the Department considering the potential impact of different auditing and reporting rules North/South or, indeed, east-west, particularly for charities operating across both jurisdictions? What steps are being taken to minimise bureaucracy while upholding the transparency, particularly North/South?

Ms Bell: The removal of section 167 will allow charities operating here to continue as they do now, so it does not make any changes to the current arrangements. If a charity from the South operates here, it continues to report to the Charities Regulator in the South, and all the audit requirements that go with that will apply there. They will account for their income here in their accounts in the South, and it is exactly the same for across the water.

The Chairperson (Mr Gildernew): OK. Thank you.

Mr McHugh: Tá fáilte romhaibh uilig.

Have you given consideration to the difference in the audit thresholds North and South, and will that entail additional administrative burdens for charities?

Ms Bell: Raising the audit threshold would actually ease burdens on charities because it would be less likely for them to need to have a full audit. We are considering that, and we plan to make a recommendation to the Minister. We are aware that the threshold was raised in England and Wales and that it is being raised in the South and in Scotland. It is on our radar, and we intend to recommend it, but it should be straightforward enough to raise it by order, if the Minister deems that to be the appropriate course of action.

Mr McHugh: Have you had any meetings with the Charities Regulator in the Republic?

Ms Bell: We have one planned for the summer. We have a quarterly multi-jurisdictional meeting to discuss all the current issues in charity regulation. The charity regulatory authority down South is not part of that, but we have a meeting planned for July.

Mr Reilly: Yes.

Mr McHugh: Go raibh maith agat.

Ms K Armstrong: I tried to be helpful at Second Stage by highlighting some of the things that I intended to bring up at Committee Stage. The Minister was not happy with me, but I thought that that was how it was supposed to be done.

I brought up clause 3, which is "Official warnings to be issuable", because it specifically mentions post but does not mention digital. As a school governor, my email is everywhere. When I was a charity trustee, everybody had my email. Why have we not included that there?

Ms Bell: As the Minister explained, it does not exclude warnings being issued by digital means. We took advice on that after you raised it last week. Post is the legally trusted method for issuing official warnings, especially when there are implications arising from them. The way that it is drafted does not mean that, if it was deemed appropriate to do it digitally in future, it could not be done, but it is probably better to leave it as "by post", because that is the legally accepted way to serve notices.

Ms K Armstrong: Is there an opportunity to update and future-proof the explanatory and financial memorandum to explain that "by post" encompasses other means?

Ms Bell: Absolutely.

Ms K Armstrong: That would be handy.

The other thing in clause 3 that I want to ask about is the official warning. The Charity Commission is very good, but what happens if it makes a mistake? If the commission does an investigation, and it comes out that it was wrong, is there any way that an apology could be issued? I used to work in the community and voluntary sector, many years ago, and having that type of warning cuts off any opportunity for fundraising at the knees, because trust is lost. If there is a mistake, the commission can redact it within 28 days, but it will have been published in the public domain. It may be redacted after that, but there will be harm to the organisation if the commission cannot apologise.

Ms Bell: It is important to note the way in which the official warning is structured. The organisation will be able to make representations before the official warning is issued. It will get notice that the commission intends to publish an official warning and will then have 28 days to make representations as to why it thinks that it should not be published. That is where all those issues should be scoped out in the first place. If the commission deems that it is still appropriate because the charity has not done enough to rectify the wrongdoing, it will publish the official warning, and, if the charity rectifies the issues later, it will revoke it. However, nothing in the Bill states that the commission should apologise. The warning is structured so that the charity can make representations in advance. That should prevent the official warning from happening, if the issues have been addressed beforehand.

Mr Martin Ireland (Department for Communities): If the commission gets it wrong, it can amend the warning or withdraw it.

Ms K Armstrong: To be honest, it makes no odds. By that stage, the charity's reputation is down the pan. We do not want to go that far.

Mr Reilly: The Bill now includes a provision for a withdrawal notice to be published. We hope that that would cover that situation.

Ms K Armstrong: OK.

My next question is on clause 4, which I brought up previously with regard to employment. I know that it is in the Charities Act 2008, but I do not understand the legislative role of a charity commission's being able to sack an employee.

Ms Bell: Again, we took legal advice on that, but we also spoke to the Charity Commission. It has never used that power. In the first instance, it would ask the charity to deal with any issues that are going on. It would issue regulatory guidance or whatever was needed to rectify the problems. It takes that approach, as an enabling regulator. If it came to the point where the commission had to use the powers under section 33, it is in the Bill that it could remove an employee. We are not clear on how that operates in practice. We are trying to get a conversation with colleagues in England and Wales to see how it operates in practice, because it is more likely that they have used that power. In the first instance, however, it is for the charity to remove the employee.

Ms K Armstrong: That is what I was more worried about. We thought that we were giving the Charity Commission powers, but, when I looked at it, I saw that contract law, labour relations and all that comes into it. That concerns me, because we do not want to put into the Bill something that we cannot —.

Ms Bell: We are not doing anything on that in the Bill. That is already in the Act. What we are doing in the Bill is providing that, if a person resigns their post, the commission can continue to use its powers.

Ms K Armstrong: I am just thinking about looking at whether there is an opportunity to get it right at this stage, when we are amending. I have always thought that having that in the 2008 Act was a load of nonsense, because any employee worth their salt would just hire a lawyer and say, "I have a contract of employment not with the Charity Commission but with the charity". Thank you very much for your answer on that.

During the debate, I brought up the fact that we were not taking the opportunity to look at vesting. In the previous mandate, the fact that a charity had had property removed from it was brought up with the Committee. At that stage, nobody seemed to know who owned that property. That is not included in the Bill; it is one of those unclear things that still hangs there.

Ms Bell: I think that you asked whether the Charity Commission owned the property. The Charity Commission does not have any powers to hold property. It can never vest property in itself. I do not know what the specific case was. I think that Frances said that she would contact you for further information. However, the Charity Commission does not have any powers to vest in itself. It can vest property in another charity, if that is appropriate.

Ms K Armstrong: It was brought up as part of the evidence that we got previously.

There is also the matter of section 167. I used to work for a 167 organisation. Such organisations will be registered in England, Scotland, Wales, Dublin or wherever. That continues on as normal. The problem in Northern Ireland is that, because they know about the charity register and so on, many of the funding bodies here require there to be a Northern Ireland charity register for the 167 charities. Will more information come out to say either that that is not required or that a charity can register in Northern Ireland, if it wishes to do so?

Ms Bell: The Department and the Charity Commission will communicate clearly what the removal of section 167 will mean for those charities. As it stands, however, it was not going to achieve what it was originally intended to achieve. It would not have given them a charity number in Northern Ireland; it would give them a 167 number, which is not a charity number. It would not, therefore, have solved those funding issues. Funders set their own criteria. They have only a certain pot of money, and it is up to them to determine how they fund. If there is a charity that they want to fund, it is their prerogative to do that. I know about that from personal experience: I am a charity trustee, and a lot of the funds for which we apply are for non-profit organisations, so a charity number is not necessarily needed. That was not going to resolve that issue.

Ms K Armstrong: Yes. It is not with regard to the Bill but more about how funders perceive it.

Thank you very much. To be honest, I support the Bill. I support anything that can improve the operations of the Charity Commission and what it can do. It is just that I would love to get a couple of tweaks made to sort things out. I am worried that, because it is in the 2008 Act, it is assumed that the employment piece is all OK. I do not know about that. There is a big legal mess there that maybe we do not want to dip our toes into. To address that would mean making a significant number of amendments to the Charities Act 2008 to take out all references to employment, but, as you said, charities will deal with that. If a charity thinks that somebody who was working for it was bringing it into disrepute because they had carried out fraud or something, that person would be out the door.

Ms Bell: We will try to get more information on how that operates in England and Wales, because they have the equivalent power on which our legislation is based.

Ms K Armstrong: Thank you so much.

Mrs Mason: Thanks, guys, for your presentation and for outlining the changes that followed the consultation. I have one particular question. Has the Department considered — was it shown in the consultation — whether the current rules properly distinguish between charities whose primary purpose is to deliver a public benefit and those organisations that have significant commercial activity alongside that but that still benefit from the charitable tax, rates relief and other such things? Has that been considered as part of this?

Ms Bell: No. All charities should provide public benefit. That is part of the charity test. In terms —.

Mrs Mason: Sorry. What about one that does that but also has a commercial aspect?

Ms Bell: We have not considered that at all.

Mrs Mason: I am thinking of the likes of private hospitals with a charitable status, which has been highlighted to me.

Ms Bell: They would need to pass the public benefit test, and it is for the Charity Commission to determine whether they are a charity in that sense. The tax exemption is a different issue; that is an HMRC issue. A charity applies to HMRC for a charitable tax exemption, so the Charities Act does not have any bearing on that other than the granting of charitable status, if it passes the charity test.

Mr Ireland: If you pass any specific concerns to us, we will look at them.

Ms K Armstrong: If a charity has a commercial entity attached to it, that commercial entity is a separate body and is not part of the charity registration. The commercial entity can donate any profit back to the charity. They are not all under one charity regulation. Community interest companies (CICs) or social enterprises quite often have that.

Mrs Mason: OK. I might write specifically on that point. Thank you.

Ms Mulholland: I have a couple of questions. On the specifically designated religious charities, are there remaining exemptions or reduced regulatory requirements that will still be in operation? What is the policy justification behind those exemptions?

Ms Bell: The term "designated religious charity" comes from the 2008 Charities Act, so it was brought in at that time. The Charity Commission can open a statutory inquiry into a designated religious charity, but it cannot remove trustees or appoint interim managers. All the powers under sections 33 to 36 of the 2008 Act do not apply. The reason for that is that, at the time, the Assembly decided that it already had structures in place to deal with that type of misconduct or mismanagement and would do so internally. A designated religious charity must apply to the Charity Commission for designated religious charity status; it is not just granted automatically to every religious charity. If the Charity Commission is satisfied that the charity has those structures in place, it will grant designated religious charity status. However, that does not stop the Charity Commission opening a statutory inquiry into a designated religious charity. If the Charity Commission feels that the charity is not taking appropriate action, it may remove designated religious charity status.

Ms Mulholland: My follow-up question was going to be about ensuring that there are no regulatory gaps when it comes to investigation or safeguarding. Safeguarding is a key issue that has been brought up with me over the past few weeks.

My next question is on an issue that I raised when we last spoke about the Charities Bill: financial crime — the financing of terrorism and organised crime — and the risk assessment where gross annual income is under the £20,000 threshold. Is there anything in the Bill that would give the Charity Commission teeth to investigate those situations? Could we put anti-avoidance provisions into the Bill to protect public money and the public at large from organisations that may use charitable fronts to conduct their business?

Ms Bell: The powers to do that are already in the 2008 Act. If the Charity Commission gets a complaint, it has the powers to investigate. If it is a criminal case, the PSNI will do the investigation. The Charity Commission already has those powers. If the case meets the commission's risk pillars for further investigation, the powers are already in place for it to do that.

Ms Mulholland: One of the things that has been brought up with me is the potential to split activity across multiple charitable fronts or organisations in order to try to stay below the £20,000 threshold. Have views on that been sought from the PSNI, the National Crime Agency (NCA) or HMRC?

Ms Bell: Those charities will still be registered and required to submit their accounts; they will just do so in a simpler format. All that information will still be publicly visible. Whether or not funds are split in an attempt to stay below the threshold, the Charity Commission will still have all the information available and can go in and investigate if somebody raises a concern.

Ms Mulholland: OK. Thanks very much.

The Chairperson (Mr Gildernew): I have a couple of specific questions on the processes. There are amendments to clauses 2, 3, 7, 8 and 13. Can we get a tracked version of the Bill so that we can see what changes were made following consultation?

Ms Bell: I will ask and get back to you.

The Chairperson (Mr Gildernew): Will the Department share the consultation response report with the Committee early enough in order for it to inform our Committee Stage scrutiny rather than after policy decisions? Can you commit to that?

Ms Bell: We will get it to you as soon as possible.

The Chairperson (Mr Gildernew): Are you confident that clause 7 is operationally deliverable within the Charity Commission's current budget and staffing capacity?

Ms Bell: Since clause 7 was drafted and an amendment was drafted to put in the statutory time frame for a decision to be made, the Charity Commission has come to us and said that it has looked at the model further and that it thinks it will cost £611,000 over three years. The reason for that is that two staff would be needed to make those decisions. This is in relation to charities that breach the threshold in an exceptional year of income having to prepare accruals accounts. When the Charity Commission looked at how many charities were in and around that £250,000 threshold, it realised that it was quite a significant number. Those charities would have to come to the Charity Commission and ask for a decision, and the Charity Commission would have to reply within or two or three months or whatever deadline we set in regulations. That is just not deliverable, so we have been working with the Charity Commission to look at an alternative model. That will be done through regulations, and the Bill will provide for it. We will consult on those regulations. The thinking around it now is that it will be an income-smoothing process. If a charity breaches the £250,000 threshold in the first year, it will continue with receipts and payments accounts. If it breaches it in the next year, it will have to change to accruals accounts. That delivers the same policy intent, but it relieves the resource burden on the commission.

The Chairperson (Mr Gildernew): OK. Thank you. You have led me nicely on to my final question on clause 7. Why are those regulations subject to negative resolution, given that they will determine a key component of the Bill?

Ms Bell: Accounts and reports regulations are already in the 2008 Act as being subject to negative resolution, so we are not changing that. The last time that I was here, I mistakenly told you that they would be subject to draft affirmative procedure, but we since went away and looked at that. They are technical amendments, which are normally done by negative resolution. However, if the Committee feels that it wants those to be done by draft affirmative procedure, we can amend that. We will be happy to come and brief the Committee ahead of making those regulations, if that would be of help.

The Chairperson (Mr Gildernew): OK. We will keep that under review.

There has been a late suggestion that there may be a request for briefings across the summer. Given that we have the pre-legislative consent and are going out for consultation over the summer, what would be the purpose of any additional sessions?

Ms Bell: We are not aware of a suggestion to have any additional sessions.

The Chairperson (Mr Gildernew): OK. That is fine.

Thank you for your attendance. We look forward to getting into this Bill. Generally, we see anything that will support charities and the community and voluntary sector as welcome, although we are very keen to protect reputation, retain transparency and do all of that. We look forward to continuing our scrutiny work, and, no doubt, we will see you all again soon. Good luck.