Keep it legal: Payment of trustees

Although charities involve a large number of volunteers, it is proper and sometimes necessary for charities to remunerate their trustees.

This enables them to attract quality people. But to achieve a balance between recruiting the right trustees and retaining public confidence, there are restrictions on how they are paid.

There are differences between the current rules on remuneration in Scotland and those in England and Wales. The Charities and Trustee Investment (Scotland) Act 2005 introduced new Scottish remuneration provisions for all charities that did not have a remuneration power in their constitution on or before 15 November 2004. The new rules state that there must be a written agreement with the trustee, which is reasonable in its terms and in the best interests of the charity.

In practice, that means some form of consideration of alternatives must be carried out. The underlying duties regarding conflict of interest and acting with care and skill apply equally to payment. Importantly, the new rules allow only 49 per cent of trustees to be remunerated. The rules also apply to benefits in kind, such as the provision of insurance, which means that trustee indemnity insurance breaches the 2005 act because all trustees benefit.

The Office of the Scottish Charity Regulator has confirmed, however, that this technical breach will not be actively enforced by it. But until anticipated amendments to the legislation are enacted or it is decided that indemnity insurance is not remuneration, trustees could be faced with the prospect of policies being void for not following the 2005 act.

The Charities Act 2006 will largely mirror the Scottish provisions. From early next year, English and Welsh charities will no longer have to ask the Charity Commission permission to make payments to trustees in certain cases.

Guidance will be issued on the matter early next year, and charities will be expected to follow it. There will continue to be cross-border divergence regarding payments for being a trustee rather than providing services, the role of powers to pay in a constitution and trustee indemnity insurance.

Cross-border charities will, as ever, have to keep an eye on both sets of rules.

- Alan Eccles is a solicitor at Maclay Murray & Spens LLP 

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