For more details on a Trustee's legal requirements when making a grant overseas see: http://www.ibblaw.co.uk/services/charities The law has strict requirements with which all charities must comply to ensure they undertake appropriate monitoring of all overseas grants and can verify that the funds are applied for the intended purposes. In this Article Eva Abeles, a Senior Solicitor in IBB Solicitors Charities team, sets out a brief explanation of the legal requirements which trustees of grant making charities must comply with, as well as providing some practical tips on compliance. The trustees of a charity in the UK granting money overseas are legally responsible for ensuring that grants are used only for exclusively charitable purposes and reach the intended beneficiaries. Questions are being raised about whether some donations made to UK charities providing overseas aid have ended up in the hands of various terrorist groups. Trustees should take careful note as non-compliance with the law can result in severe sanctions – loss of charity tax relief on the funds sent abroad, as well as a potential breach of trust claim against the trustees personally.

1. IBB SOLICITORS CHARITIES TEAM
Monitoring grants made overseas
The law has strict requirements with which all charities must comply to ensure
they undertake appropriate monitoring of all overseas grants and can verify
that the funds are applied for the intended purposes. In this Article Eva Abeles,
a Senior Solicitor in IBB Solicitors Charities team, sets out a brief explanation
of the legal requirements which trustees of grant making charities must comply
with, as well as providing some practical tips on compliance.
MONITORING GRANTS
MADE OVERSEAS
The trustees of a charity in the UK granting
money overseas are legally responsible
for ensuring that grants are used only for
exclusively charitable purposes and reach the
intended beneficiaries. Questions are being
raised about whether some donations made
to UK charities providing overseas aid have
ended up in the hands of various terrorist
groups. Trustees should take careful note as
non-compliance with the law can result in
severe sanctions – loss of charity tax relief on
the funds sent abroad, as well as a potential
breach of trust claim against the trustees
personally.
1. HMRC’S REQUIREMENTS
WHEN MAKING OVERSEAS
GRANTS
The Finance Act 2010 changed the law relating
to payments by charities to organisations
outside the UK. It added a qualification so
that payments to an organisation outside the
UK are now only considered to be charitable
expenditure if:
“the charity takes steps that the Commissioners
for HMRC consider are reasonable in the
circumstances to ensure that the payment is
applied for charitable purposes.”
HMRC published Guidance on what it would
consider to be reasonable in June 2011.
IMAGE SOURCE: ELISABETH GREBE, FOTOGRAFIE (PHOTOCASE.COM)
HMRC has also become increasingly
concerned about the use of UK tax breaks
to fund overseas projects and the possible
diversion of funds or aid to terrorist elements
and so it is now scrutinising overseas grants
more closely. If a UK charity does not comply
with the HMRC Guidance, then grants could
be considered by HMRC to be non-charitable
expenditure and therefore liable for tax.

2. IBB SOLICITORS CHARITIES TEAM
Monitoring grants made overseas / 2
This would clearly have serious adverse
consequences to any charity in the UK and
so trustees should take the necessary steps to
ensure that their charity is complying with the
HMRC Guidance.
2. CHARITY COMMISSION
REQUIREMENTS WHEN
MAKING OVERSEAS GRANTS
Charities in the UK can support charitable
organisations overseas provided that the
trustees ensure that all grants made to
overseas organisations are used only for the
exclusively charitable purposes for which
they were given. If a charity in the UK makes
a grant to an organisation overseas without
controlling the way those funds are spent
by it, this may not be charitable (see Charity
Commission Guidance: Charities working
internationally).
The trustees need to ensure that, when making
any grants to organisations outside the UK,
they:
•
comply with the law and act in the
best interests of their charity and its
beneficiaries;
•
comply with the legal principles of duty
of care and prudence and maintain
control of charitable funds; and
•
ensure that the funds granted to the
overseas organisation are used properly,
lawfully and in furtherance of the
donating charity’s charitable purposes
only.
In discharging this last duty, trustees
should be aware of Chapter 2 of the Charity
Commission’s Compliance Toolkit on Due
Diligence, Monitoring and Verification of
the End Use of Funds which provides a clear
framework for assessing what the Charity
Commission regards as best practice. Simply
receiving a receipt for funds sent abroad to an
overseas organisation or agency is no longer
considered to be sufficient to comply with the
law. As a minimum, trustees need to take the
steps discussed below.
MEMBERS OF:
3. INCLUDING APPROPRIATE
REPORTING AND MONITORING
PROVISIONS IN GRANT
AGREEMENTS
4. MAINTAINING RECORDS
OF REPORTS RECEIVED
AND OTHER MONITORING
UNDERTAKEN
Charities are advised to have suitable template
grant agreements ready for selected grant
applicants to sign on successful completion
of the due diligence process, which can be
tailored for each grant.
All reports and evidence provided by overseas
organisations reporting on how a grant has
been spent should be kept in a file, together
with the original due diligence on that
overseas organisation and a signed copy of the
grant agreement. This file can be provided to
HMRC (or the Charity Commission) should
they decide to inspect or query the monitoring
of the end use of the funds by the trustees for
any grants made.
Grant agreements should include provisions
requiring the grant recipient to report back to
the charity on how it has spent the grant and
setting out what information and evidence
the grant recipient must provide. It is usually
advisable for these provisions to include a
right for the charity to stop making grant
payments (if payments are to be made in
tranches) and/or to recover payments already
made if the grant recipient either does not
provide sufficient reports or if concerns are
raised as to how the grant is being spent.
Trustees may wish to consider designating
a named employee/trustee to be the person
responsible for receiving and reviewing
reports from grant recipients on how they
have spent the grants and for making followup checks (or chasing for missing reports)
where necessary.
Trustees should also bear in mind that their
charity may need a number of different
template grant agreements, as what may be
considered an appropriate level of reporting
and monitoring is likely to differ depending
on various factors including:
•
the amount being granted;
•
the purposes for which the grant is being
made;
•
whether there is an established working
relationship with the grant recipient; and
•
the risks (e.g. terrorism, moneylaundering, corruption etc) associated
with the country in which the grant
recipient is operating.
It is important that public confidence in
how funds donated to charity are spent is
maintained. By carefully monitoring how
overseas grants are spent, charity trustees will
not only ensure that they are complying with
the law, but they should be able to maintain
the trust and confidence of their donors that
money donated to the charity reaches the
intended beneficiaries.
If you or your Trustees would like to
talk in more detail about adapting or
creating your grant making strategy
and related procedures, please contact:
Eva Abeles,
Senior solicitor,
IBB Solicitors Charities team
01895 207964
eva.abeles@ibblaw.co.uk
THIS BRIEFING NOTE IS ONLY INTENDED
TO PROVIDE GENERAL GUIDANCE AND
IS NOT INTENDED TO CONSTITUTE
LEGAL ADVICE.
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2013
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