New guidance has been published to help NHS charities break away from the NHS and become independent charities regulated only by the Charity Commission.
At present, charities that are directly linked to NHS bodies are subject to both charity law and NHS legislation, which gives the Secretary of State the power to appoint trustees to the NHS charity and to transfer funds between the charity and the NHS in certain circumstances.
In 2012 the Department of Health published a consultation on proposals to change the regulation and governance of these charities and 62 organisations and individuals responded. Overall 83 per cent were supportive of the proposed changes.
The consultation came after changes in accounting rules, which meant NHS charities’ balance sheets could become consolidated into NHS accounts. Many charities complained this situation is unfair and in contravention of donors’ intentions.
Preferred option
The government's preferred option in the end was to allow NHS charities to set up a new charity and transfer their current assets to it. The new charity would be free to set its own constitution including objects, legal form and trustee appointments appropriate to its needs.
However, those NHS charities with corporate trustees will not be compelled to go through this process and can retain the status of an NHS charity if they wish. Those with individual trustees appointed by the Secretary of State will have to convert eventually but there is no deadline for this as yet.
Where charities decide to change their status, the Secretary of State will need to revoke the appointment of those trustees he had appointed as otherwise they would become “obsolete”.
The Department of Health did consider removing all NHS legislation from the relevant charities but ruled this out because it would jeopardise the NHS bodies’ ability to automatically receive and pass to their charity any gifts, legacies and bequests that may be made to the NHS body in the future.
This would increase the risk of contested wills and NHS patients losing the chance to benefit from such gifts.
Memorandum of understanding
The Department recommends that the new charity and the linked NHS body ought to draw up a memorandum of understanding to govern their relationship going forward, in order to ensure that the NHS body does not have disproportionate influence over the new trustee board.
Such a memorandum should set out clearly that the NHS body agrees that the new charity will hold all donations and bequests and will pass these on. It would also specify details of transfers of property and assets.
Of the charities that responded to the consultation, just 15 said they expected to become independent within the next year or two, and a further three would do so within five years. Although this represents only around 6 per cent of the 263 NHS charities, it is the group that holds the most assets.
Impact on consolidation of accounts
On the subject of how this change would affect NHS accounts, the government said: “The accounts of all NHS charities have now been consolidated into the Department of Health Accounts for the years 2010/11 and 2012/13 but clear notes have been included within the accounts to make it clear that these are charitable funds and not resources available for the general expenditure of the Department or the NHS.
“The Department has agreed a reporting process with the Treasury for transfers of funds from NHS charities to other bodies to ensure that these transfers do not count against the day-to-day expenditure of the NHS.
“For this reason it will be necessary for all NHS charities whether they have corporate or appointed trustees to notify DoH of any plans to transfer funds to an independent charity at an early stage in the planning process.”
Benefits of independence
New independent charities may register either as companies limited by guarantee or charitable incorporated organisations, so its contractual liability will be limited.
Other benefits include not being subject to the public procurement regime as NHS charities currently are; the new charity can also choose its own trustees and advisers, including auditors, and it will be able to adopt wider charitable purposes for new money and to enter into more innovative fundraising initiatives, mergers and collaborations.
However the guidance warned that conversion to independent status will incur costs and could be disruptive for a period.
It will also need to apply to HMRC for recognition as a charity for tax purposes.
The Department also recommends that NHS bodies ought to have some ongoing input into decisions on the use of the new charity’s resources and so the new charity’s constitution could provide for at least one trustee to be appointed by or from the NHS body.
