Legal risks and compliance for UK charities - guide and advice

UK charities operate in an increasingly complex legal landscape. Understanding key legal obligations and risks is essential for trustees and charity managers to ensure effective governance and protect charitable status. We cover principal areas requiring attention and practical steps for compliance.

Regulatory

The primary legislation governing charities includes the Charities Act 2011, Charities (Protection and Social Investment) Act 2016, and Trustee Act 2000. The Charity Commission provides regulatory oversight and guidance. Charities must also comply with wider legislation affecting their operations, from employment law to data protection.

Legal risk areas

• Investment - the Trustee Act 2000 imposes specific duties regarding investments. Trustees must follow proper investment principles while balancing ethical considerations against financial returns.

• Fundraising compliance - the Charities (Protection and Social Investment) Act 2016 strengthened fundraising regulation. Charities must implement proper controls over fundraising activities, including agreements with professional fundraisers and commercial participators. Requirements around donor consent, vulnerable persons protection, and transparency in fundraising communications demand robust policies.

• Employment law - charities face specific employment challenges. Clear distinction between volunteers and employees is crucial to avoid unintended employment rights. Recent gig economy cases highlight risks around worker classification and associated rights.

• Data protection requirements - GDPR compliance remains critical. Particular care is needed with donor information and fundraising databases. Beneficiary information often includes sensitive personal data requiring enhanced protection.

• Fraud - poses a significant and growing risk to UK charities.Legal obligations require charities to report serious incidents of fraud to the Charity Commission under Section 156 of the Charities Act 2011. Trustees have a legal duty to protect charity assets and could face personal liability for failing to implement adequate fraud prevention measures. If fraud is discovered, charities must report criminal activity to Action Fraud and may need to report to other regulators depending on their sector.

Key legal documents and policies

We draft and advise on charity documents and policies including :-

• Conflicts of Interest Policy - detail identification and management of trustee and senior staff conflicts, including declaration procedures, recording in minutes, and when individuals should recuse themselves from decisions. Required under Charity Commission guidance CC29.

• Fundraising Procedures - essential documentation outlining compliance with Fundraising Regulator's Code, including vulnerable person protections, professional fundraiser agreements, and data protection in fundraising. Must address requirements of Charities (Protection and Social Investment) Act 2016.

• Data Protection Procedures - GDPR-compliant policies covering handling of donor and beneficiary data, including lawful basis for processing, retention periods, and subject access request procedures. Must address special category data often held by charities.

• Employment Handbook - comprehensive documentation of employment terms, volunteer management, grievance procedures and safeguarding requirements. Particularly crucial given mixed paid/volunteer workforce in charities.

• Risk Management Policy - required under CC26 guidance, documenting risk assessment procedures, risk appetite, and mitigation strategies.

• Financial Controls Policy - documenting internal financial procedures, delegation limits, and anti-fraud measures as required by CC8 guidance.

• Safeguarding Policy - mandatory for charities working with vulnerable beneficiaries, detailing protection procedures and reporting mechanisms.

• Investment Policy - required for charities with investments, outlining investment objectives, ethical considerations, and review procedures following Butler-Sloss principles.

Reputational risk

This crosses over with legal risks in most cases adverse publicity or claims of impropriety can be very damaging for the charity but also trustees. Practical steps for risk management include ensuring you have the right policies and procedures, including a social media policy, good employment contracts and at the management level :-

• A clear scheme of delegation.

• A comprehensive risk register.

• Regular trustee training.

• Documented decision-making processes.

Charity trustee liability

The role of charity trustee carries significant personal risks that require careful consideration and management. Trustees can incur personal liability for financial losses resulting from :-

• Breach of trust

• Acting outside their powers (ultra vires)

• Negligent investment decisions

• Unauthorised benefit to trustees

• Wrongful trading if the charity becomes insolvent

• Regulatory breaches for compliance failures

• Third party claims for contractual breaches

Legal protections for trustees

Trustees should ensure they consider indemnity insurance coverage, and if this is taken out that it is adequate and they understand policy exclusions, coverage limits.

Other important ways charity trustees can protect against personal liability include :-

• Constitutional protection - clear governing document provisions, proper authority for actions and documented decision-making processes, regular governance reviews.

• Protection relating to investment decisions - vital to ensure the charity has a proper investment strategy and documented investment decisions. Having evidence of obtaining external professional advice is also strongly recommended.

• Commercial decisions - property transactions can come under scrutiny and it's important to ensure there is proper authority to enter into contracts and no risk of any conflict of interest being alleged.

Contact Us

For expert advice on charity law compliance, legal documents and contracts for charities, advice for charity trustees and risk management, contact our specialist charity team.