Keep it Legal: Paying trustees for services

Last month's third commencement order for the Charities Act 2006 brought in a number of new powers for charity boards. These include permissions for charitable companies to make minor changes to their memoranda and articles of association without the Charity Commission's consent, and for unincorporated charities with incomes of less than £10,000 to transfer all their assets to other charities or change their charitable purposes by making simple resolutions. These are discussed in Rosie Chapman's column on the right of this page.

But perhaps the most significant change is a new power for charities to pay their trustees, or people connected to them, for providing goods and services without permission from the commission, if certain safeguards are satisfied.

The new power does not apply to payment for being a trustee or payment under a contract of employment. Some charities' governing documents expressly prohibit trustees from receiving remuneration. If that is the case, those provisions must be amended before making any such arrangements.

One of the main conditions in the legislation is that the amount to be paid to the trustee must be set out in a written contract between the trustee and the charity, and must not exceed what is reasonable in the circumstances.

What is 'reasonable'?

Trustees will have to assess what remuneration is reasonable with an eye to their general duties as trustees.

They should ensure their decision and the reasons for it are clearly recorded, particularly if they choose to pay a trustee despite the availability of cheaper alternative sources for the service. This might arise, for example, if they believed that the service provided by the trustee would be of better quality.

The trustee to be paid must not take part in the decision over who to contract the service from, and a charity must not transact with more than a minority of its trustees.

In addition, trustees must have regard to any guidance issued by the Charity Commission on the payment of trustees and must exercise reasonable skill and care.

Shivaji Shiva is head of charity law at Michelmores LLP


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