L7.0 Acceptance and Refusal of Donations L7.0 Acceptance and Refusal of Donations
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Note: MUST* and MUST NOT* (with asterisk) denotes legal requirement
MUST and MUST NOT (without asterisk) denotes requirement of the Code of Fundraising Practice
L7.1 Delaying a donation
On occasion a charity may wish to refuse a donation, or delay its acceptance, with a view to persuading the donor to make the gift in a more tax-effective manner (e.g. by Gift Aid). A charity can decide to do this provided that the trustees are clearly aware of the risk that the donor might be put off making the donation altogether, and provided that the charity explains the tax advantages accurately to the donor.
Where the trustees (or their delegates) decide to refuse a donation, they MUST keep a careful minute of their decision, and the reasons for it. It is good practice for charities to adopt a policy about the circumstances in which donations might be refused.
L7.3 Requirements in England and Wales
L7.3.1 Charity Commission
If the trustees are concerned about whether or not to refuse a particular donation, they may wish to seek the views of the Charity Commission under section 110 Charities Act 2011 (power to give advice) or an order from the Charity Commission sanctioning their decision under section 105 Charities Act 2011 (power to authorise dealings with charity property etc.).
Circumstances where advice or an order might be of particular benefit are those where: it is not immediately clear what the ‘best interests of the charity’ are in relation to the proposed donation large sums of money or property are involved the trustees have reason to believe that a decision taken by them might be subsequently challenged in the courts; and the trustees wish to use the ‘authority’ of Charity Commission advice or an order to mitigate against the threat of negative publicity engendered by the refusal of a donation.
See also the section on ex gratia payments below.
L7.3.2 A legal obligation to return a donation
There may be a legal obligation on a charity to return a donation. For example, the conditions attached to the gift may require the return of the gift in certain circumstances.
One situation where this might arise is known as a failed appeal. This may occur where an appeal for a particular purpose fails to raise sufficient funds to achieve that purpose: strictly the donors may be entitled to a refund.
This can be pre-empted if the wording of the appeal literature makes it clear that in these circumstances, the funds will be used for the charity’s general purposes. The donor will not generally be entitled to a refund in those circumstances.
If the donor is, strictly, entitled to a refund, the provisions of the Charities Act 2011 may help. Section 65 Charities Act 2011 applies if donors to an appeal are informed that if the appeal fails, donations will be used for general charitable purposes, unless the donor makes a written declaration to the effect that they would like to have the opportunity to reclaim their donation in these circumstances. If the appeal fails, the trustees MUST then take certain steps to contact the donors who have made declarations: the Charity Commission can then be asked to make a scheme under section 63 Charities Act 2011 to apply the donated funds for different charitable purposes.
More information is available in Charity Commission operational guidance OG53: Charitable Appeals – Avoiding and Dealing with Failure. Note that it will often be easier to ensure that appeal literature simply specifies that the funds will be used for the charity’s general purposes if the appeal fails, rather than relying on the more complicated section 65 procedure, which requires the Charity Commission’s involvement.
If section 65 does not apply, it may still be possible to ask the Charity Commission to exercise its powers under section 63 to make a scheme to the effect that the property should be used for different charitable purposes. Section 63 allows the Commission to make a scheme in certain circumstances, including where the donor cannot be identified or found after certain advertisements and inquiries have been made. Under section 64 certain donations can be treated as belonging to donors who cannot be identified, including cash in collecting boxes and funds which the Charity Commission has decided should be treated as belonging to unidentifiable donors, because the costs of trying to trace the donors would be disproportionate or because in the circumstances (for instance a lapse of time) it would be unreasonable for the donors to expect the return of their donations.
There may also be scope to take advantage of the Commission’s general scheme making powers in the event of a failed charitable gift.
Another example of where there may be a legal obligation to return a donation is under Section 61, Charities Act 1992, Part II, which applies in England and Wales and provides for the return of donations of more than £100 made by credit/debit card within a seven day ‘cooling off’ period. The donation MUST have been made in response to an appeal by a professional fundraiser or commercial participator either in the course of a radio or television show or otherwise made orally (other than by speaking directly to, or in the presence of, the individual to whom the appeal is addressed). NB. Section 61 of the Charities Act 1992 was updated in 1999 to set the applicable threshold for return of donations to £100 from £50.
L7.3.3 A moral obligation to return a donation – ex gratia payment
There may be situations where a charity has no legal obligation to return a donation which has been made, but the trustees feel that there is a moral obligation to do so.
There is scope for the Charity Commission, using its powers under section 106 Charities Act 2011, to authorise a charity to refund a donation in these circumstances. More information is available in the Charity Commission’s guidance CC7 – Ex Gratia Payments by Charities and in the Charity Commission’s operational guidance OG 539 Ex Gratia Payments by Charities.
L7.4 Requirements in Scotland
While charities in England and Wales can seek an order from the Charity Commission authorising the refusal of a donation, no similar procedure exists in Scotland. Trustees of charities which are governed by OSCR ought to seek professional legal advice if they are concerned about a particular donation in order to ensure that they fulfil their legal duties when opting to accept or refuse the donation.
Where it is clear that the activities of a donor are directly inimical to the objectives of the charity, the agreed policies of the charity, or to the beneficiaries of the charity, the trustees can refuse the donation in the interests of the charity.
Where the potential donor is a person or a company whose activities are not directly related to the charitable objects of the charity, but the charity nevertheless wishes to avoid association with the donor, great care should be exercised in coming to a decision.
Where it can be shown that the cost to the charity of accepting a donation will be greater than the value of the donation itself, the trustees (in promoting the best interests of the charity) can and should refuse the donation.
a) If refusing a donation, trustees MUST* be able to demonstrate the tangible fact that they have grounds reasonably to believe that it is not in the interests of the charity to accept the donation, usually by showing that they have cause to believe that acceptance of the donation will itself directly lead to a net decline in the asset base, support or reputation of the charity, or cause harm to its beneficiaries.
Where the offer of support is dependent upon the fulfilment of certain conditions placed upon the charity, the trustees have the right to refuse that support. Such cases might exist where:
- any condition linked to the support is, in itself, contrary to the objectives of the charity
- any condition linked to the support is regarded as unreasonable in relation to the nature of the support in terms of its size or impact on the work of the charity
- conditions linked to the support will divert the charity from pursuing its current objectives, policies or work priorities as a necessary result of the fulfilment of the conditions alone
- the conditions linked to the support tie the funds and/or property offered to a specific activity, and that specific activity is not:
- i) charitable in nature
- ii) within the scope of legitimate action permitted by the recipient charity’s constitution in order to achieve its charitable aims
- iii) practically achievable by the recipient charity
Practical considerations may mean that an otherwise acceptable donation is refused. Such cases might exist where:
- the support is tied to a particular project or activity which, whilst reflecting the charity’s objects, is nevertheless impractical, given the current standing of the organisation. An example of such a case is where support is offered to purchase capital assets (building or land) but the charity, whilst in need of the capital asset, has no resources with which to maintain the running costs associated with it
- the support is presented in an unconventional manner and the cost of processing the donation exceeds the value of the donation. An example of such a case is where a charity is offered a wheelbarrow of penny coins. It might be argued that the costs associated with the counting and processing of the coins will outweigh the value of the donation itself
- the support consists of goods, services or property which the charity cannot lawfully use, convert, exchange or sell in direct support of its charitable objects
Where a donation has been accepted but the conditions later prove to be inappropriate or unworkable, the charity may be able to apply to OSCR to reorganise the restricted fund created by the donation. However, this will only be possible where the charity is unable to ascertain the wishes of the donor.
While ex-gratia payments to discharge a compelling moral, but not legal, obligation can be made in England and Wales with the Charity Commission’s consent, there is no equivalent procedure in Scotland. In Scotland, charities’ constitutions must, under section 7(4) of the Charities and Trustee Investment (Scotland) Act 2005, prohibit the distribution of the charity’s funds for non-charitable purposes. This, coupled with the lack of any equivalent mechanism permitting OSCR to authorise ex-gratia payments, means that charities which are governed by Scots law and have OSCR as their principal regulator cannot make ex-gratia payments. While they remain entitled to take a commercial view on matters and may agree a compromise with an individual or body which has a valid legal claim, they cannot make a payment where there is no legal case solely on the grounds of compassion or morality.
Where a donor requests it, the law provides for the return (subject to the deduction of any administrative expenses reasonably incurred) of certain donations of £100 or more within a seven day ‘cooling off’ period. This provision exists in in Scotland under Regulation 5 of the Charities and Benevolent Fundraising (Scotland) Regulations 2009. The donation MUST have been made in response to an appeal by a professional fundraiser or commercial participator and either:
- the appeal was made in the course of a radio or television show and payment of at least £100 was made by credit or debit card
- the payment was made, or an agreement was made to make a payment or payments at a later date with the amount or aggregate amount totalling at least £100, in response to an appeal made orally (other than by speaking directly to, or in the presence of, the individual to whom the appeal is
- addressed) and the payment was made by any means.
L7.5 Northern Ireland Requirements
The Northern Ireland position is similar to England and Wales. Under the Charities Act (Northern Ireland) 2008 a charity may in respect of donations, seek the advice of the Charity Commission for Northern Ireland under Section 46. This section gives the Commission the power to authorise dealings and to act upon any decisions which may be expedient to the charity – this also comes with the added power of being able to sanction their decision.
Also, a donation may be refused if some condition in it cannot be fulfilled – if it is impossible or impracticable. There are numerous examples of this, and if the condition fails, then the donation is returned. However, there is a precedent that setting a condition that money to be returned negatives the charitable intent, so it will be applied cy-près.
Under Section 47 of the Charities Act (Northern Ireland) 2008 the Commission also has the power to authorise ex-gratia payments. This is where there is a large sum of money attained by the charity and although they have no legal obligation to return the payment, the trustees of the charity feel that they have a moral obligation to return the donation.
Also, under Section 49 the Commission have the power to give advice or guidance and if they so please, the trustees of the charity may approach the Commission to seek their views on a certain donation. However, the trustees are responsible if they follow the advice.
Further Guidance can be found in the Institute of Fundraising’s Acceptance, refusal and return: A practical guide to dealing with donations