Years of discussion and debate came to an end last month when the British Government published its Draft Charities Bill. The proposed legislation modernises aspects of charity law that date back more than four centuries.

The Draft Bill follows the publication 18 months ago of the Cabinet Office Strategy Unit report Private Action, Public Benefit. It includes all but one of the 61 recommendations made in that document.

The Bill widens the list of charitable purposes to include the advancement of human rights, environmental protection and animal welfare. But to qualify as a charity an organisation must be run 'for the public benefit'. Although this term is not defined it is one of the more controversial measures, potentially challenging the charitable status of private schools and private hospitals.

Two new legal forms are proposed. The Charitable lncorporated Organisation (CIO), will allow a membership organisation or foundation to adopt limited liability. The Community lnterest Company (CIC) will be limited by shares or guarantee and may include a cap on dividends and distributions.

Charity law will still not permit charities to carry out non-primary purpose trading within the charity on a substantial basis. As now, they will be required to create subsidiaries to conduct such trading activities.

The audit threshold will be increased. All charities with an annual turnover exceeding £500,000 will require an audit (currently £250,000). Charities will also be brought into line with companies with the introduction of asset thresholds. Those with assets above f2.8m will need to be audited, regardless of income. Organisations below the thresholds will still need an independent examination, but in future these examiners must hold a professional qualification.

All charities with income over fl m will be required to prepare a Standard lnformation Report (SIR). The details are not yet known, but the Charity Commission began consultation on the SIR last month and the process will last until the end of July. The SIR will not need to be audited, but will be certified by charity trustees.

Excepted and exempted charities who are not currently required to register with the Charity Commission will move towards full compliance with charity law.

New rules concerning the payment of trustees for services will include strict procedures to be followed, enforceable by criminal sanctions.

The Bill also contains proposals for stricter street collection rules. Fundraisers will be left to regulate themselves, but the Government will retain powers to step in.

Although the details of the legislation are now clear, it is still not certain when it will become law. The Draft Bill will be scrutinised by a joint committee of the House of Commons and the House of Lords and their report is expected in September. This should lead to inclusion of the Bill in the Queen's Speech in November.

Assuming this timetable is met, an Act could come into force in 2005/6. However, legislative matters do not always proceed smoothly, and there could be further developments before the Bill reaches the Statute Books.

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