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UK Charity Law Guide: Trustee Legal Requirements of Monitoring Grants Made Overseas
 

UK Charity Law Guide: Trustee Legal Requirements of Monitoring Grants Made Overseas

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For more details on a Trustee's legal requirements when making a grant overseas see: ...

For more details on a Trustee's legal requirements when making a grant overseas see:
http://www.ibblaw.co.uk/services/charities
The law has strict requirements with which all charities must comply to ensure they undertake appropriate monitoring of all overseas grants and can verify that the funds are applied for the intended purposes. In this Article Eva Abeles, a Senior Solicitor in IBB Solicitors Charities team, sets out a brief explanation of the legal requirements which trustees of grant making charities must comply with, as well as providing some practical tips on compliance.

The trustees of a charity in the UK granting money overseas are legally responsible for ensuring that grants are used only for exclusively charitable purposes and reach the intended beneficiaries. Questions are being raised about whether some donations made to UK charities providing overseas aid have ended up in the hands of various terrorist groups. Trustees should take careful note as non-compliance with the law can result in severe sanctions – loss of charity tax relief on the funds sent abroad, as well as a potential breach of trust claim against the trustees personally.

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    UK Charity Law Guide: Trustee Legal Requirements of Monitoring Grants Made Overseas UK Charity Law Guide: Trustee Legal Requirements of Monitoring Grants Made Overseas Document Transcript

    • IBB SOLICITORS CHARITIES TEAM Monitoring grants made overseas The law has strict requirements with which all charities must comply to ensure they undertake appropriate monitoring of all overseas grants and can verify that the funds are applied for the intended purposes. In this Article Eva Abeles, a Senior Solicitor in IBB Solicitors Charities team, sets out a brief explanation of the legal requirements which trustees of grant making charities must comply with, as well as providing some practical tips on compliance. MONITORING GRANTS MADE OVERSEAS The trustees of a charity in the UK granting money overseas are legally responsible for ensuring that grants are used only for exclusively charitable purposes and reach the intended beneficiaries. Questions are being raised about whether some donations made to UK charities providing overseas aid have ended up in the hands of various terrorist groups. Trustees should take careful note as non-compliance with the law can result in severe sanctions – loss of charity tax relief on the funds sent abroad, as well as a potential breach of trust claim against the trustees personally. 1. HMRC’S REQUIREMENTS WHEN MAKING OVERSEAS GRANTS The Finance Act 2010 changed the law relating to payments by charities to organisations outside the UK. It added a qualification so that payments to an organisation outside the UK are now only considered to be charitable expenditure if: “the charity takes steps that the Commissioners for HMRC consider are reasonable in the circumstances to ensure that the payment is applied for charitable purposes.” HMRC published Guidance on what it would consider to be reasonable in June 2011. IMAGE SOURCE: ELISABETH GREBE, FOTOGRAFIE (PHOTOCASE.COM) HMRC has also become increasingly concerned about the use of UK tax breaks to fund overseas projects and the possible diversion of funds or aid to terrorist elements and so it is now scrutinising overseas grants more closely. If a UK charity does not comply with the HMRC Guidance, then grants could be considered by HMRC to be non-charitable expenditure and therefore liable for tax.
    • IBB SOLICITORS CHARITIES TEAM Monitoring grants made overseas / 2 This would clearly have serious adverse consequences to any charity in the UK and so trustees should take the necessary steps to ensure that their charity is complying with the HMRC Guidance. 2. CHARITY COMMISSION REQUIREMENTS WHEN MAKING OVERSEAS GRANTS Charities in the UK can support charitable organisations overseas provided that the trustees ensure that all grants made to overseas organisations are used only for the exclusively charitable purposes for which they were given. If a charity in the UK makes a grant to an organisation overseas without controlling the way those funds are spent by it, this may not be charitable (see Charity Commission Guidance: Charities working internationally). The trustees need to ensure that, when making any grants to organisations outside the UK, they: • comply with the law and act in the best interests of their charity and its beneficiaries; • comply with the legal principles of duty of care and prudence and maintain control of charitable funds; and • ensure that the funds granted to the overseas organisation are used properly, lawfully and in furtherance of the donating charity’s charitable purposes only. In discharging this last duty, trustees should be aware of Chapter 2 of the Charity Commission’s Compliance Toolkit on Due Diligence, Monitoring and Verification of the End Use of Funds which provides a clear framework for assessing what the Charity Commission regards as best practice. Simply receiving a receipt for funds sent abroad to an overseas organisation or agency is no longer considered to be sufficient to comply with the law. As a minimum, trustees need to take the steps discussed below. MEMBERS OF: 3. INCLUDING APPROPRIATE REPORTING AND MONITORING PROVISIONS IN GRANT AGREEMENTS 4. MAINTAINING RECORDS OF REPORTS RECEIVED AND OTHER MONITORING UNDERTAKEN Charities are advised to have suitable template grant agreements ready for selected grant applicants to sign on successful completion of the due diligence process, which can be tailored for each grant. All reports and evidence provided by overseas organisations reporting on how a grant has been spent should be kept in a file, together with the original due diligence on that overseas organisation and a signed copy of the grant agreement. This file can be provided to HMRC (or the Charity Commission) should they decide to inspect or query the monitoring of the end use of the funds by the trustees for any grants made. Grant agreements should include provisions requiring the grant recipient to report back to the charity on how it has spent the grant and setting out what information and evidence the grant recipient must provide. It is usually advisable for these provisions to include a right for the charity to stop making grant payments (if payments are to be made in tranches) and/or to recover payments already made if the grant recipient either does not provide sufficient reports or if concerns are raised as to how the grant is being spent. Trustees may wish to consider designating a named employee/trustee to be the person responsible for receiving and reviewing reports from grant recipients on how they have spent the grants and for making followup checks (or chasing for missing reports) where necessary. Trustees should also bear in mind that their charity may need a number of different template grant agreements, as what may be considered an appropriate level of reporting and monitoring is likely to differ depending on various factors including: • the amount being granted; • the purposes for which the grant is being made; • whether there is an established working relationship with the grant recipient; and • the risks (e.g. terrorism, moneylaundering, corruption etc) associated with the country in which the grant recipient is operating. It is important that public confidence in how funds donated to charity are spent is maintained. By carefully monitoring how overseas grants are spent, charity trustees will not only ensure that they are complying with the law, but they should be able to maintain the trust and confidence of their donors that money donated to the charity reaches the intended beneficiaries. If you or your Trustees would like to talk in more detail about adapting or creating your grant making strategy and related procedures, please contact: Eva Abeles, Senior solicitor, IBB Solicitors Charities team 01895 207964 eva.abeles@ibblaw.co.uk THIS BRIEFING NOTE IS ONLY INTENDED TO PROVIDE GENERAL GUIDANCE AND IS NOT INTENDED TO CONSTITUTE LEGAL ADVICE. © 2013 08456 381381 ibblaw.co.uk