Current government proposals will prevent many charities from converting to charitable incorporated organisations for nine months of every year, a leading charity academic has warned.

A CIO is a charity legal form which has limited liability like a company, but does not require the filing of separate accounts with the Charity Commission and Companies House.

New charities can already apply to be CIOs, but existing charities can only convert by winding up and transferring their assets.  in the case of a charity which is structured as a company, the Charities Act 2011 allow the company to convert directly to a CIO. A Cabinet Office consultation is currently taking place on this. Charitable companies registered in Scotland can already convert.

The proposals being consulted on will not allow charitable companies with accounts outstanding to convert to CIO, regardless of whether those accounts are overdue or not, Gareth Morgan (pictured), emeritus professor of charity studies at Sheffield Hallam University, wrote in his response to the consultation.

Morgan said that as many charities have year ends in March but file accounts in December, the proposals would mean that applications for conversion can only take place during part of the year when there are no accounts outstanding – from January to March. 

He said this will “create all sorts of difficulties” for both charities and the Charity Commission.

He has called for conversions to only be prohibited if the charitable company or CIC has accounts or returns that are overdue.

“The requirement that a conversion application cannot be made if there are any accounts outstanding, even if not overdue, is excessive and will cause considerable difficulties in practice both for the companies concerned and for the Commission,” said Morgan.

“It will mean all such applications will be made late in the financial year of the company and if the conversion is not then finalised by year end it will cause further difficulties.”

Morgan uses the example of a charity with a 31 March year end.  

“They normally take most of the nine months permitted under company law to file their accounts at Companies House and with the Commission, so accounts are normally only filed in December each year. So they will only be able to apply for conversion to a CIO in the period Jan-March.

"If the conversion is not completed by 31 March they will have to undergo a further year end as a company, wait to file accounts for the next year end, and may have to wait a further year before applying,” Morgan said.

Furthermore, the high number of charitable companies and CICs with a 31 March year end will “overwhelm” the Charity Commission with applications during this period, “which is already one of the Commission’s busiest times for charity registrations,” Morgan said.

“I suggest this regulation be amended so that the conversion is only prohibited if accounts are overdue either under company law or charity law,” he said.

Charitable companies in Scotland, which are regulated by the Scottish charities regulator, OSCR, have been allowed to convert to SCIO status since January 2012 – with no legislative date restrictions on applications for conversion.

OSCR’s guidance recommends that conversion only be refused “where the company or IPS which wishes to convert is overdue in its submission of accounts or annual returns to Companies House or the FSA (as appropriate)”.

“I recommend that a similar approach is followed in England and Wales,” said Morgan.

Provision for CIO status was included in the Charities Act 2011 and introduced as a legal structure in 2013 but the implementation has been delayed by the requirement for new regulations.

The Charity Commission has allowed new charities to register as CIOs since 2013 and last year the regulator revealed that almost half of all new charity registrations opted for this form. However existing charities have until now not been able to convert.

The government’s consultation on the rules surrounding the conversion of charities to CIOs closes on 10 June, 2016.

Respondents to the consultation can submit a response or an enquiry via email to [email protected]. For further information on how to respond, click here.

The Cabinet Office was approached by Civil Society News for comment but dd not respond by the time of going to press.