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Ex Gratia Payments

Ex Gratia Payments

Charities sometimes wish to make “ex gratia” payments for various reasons, i.e. payments that are not for their charitable purposes where they do not have a legal obligation to make any payment but they consider they have a moral obligation to make it.

This topic is covered by the Guidance Note: Ex Gratia Payments by a Charity. It deals with the current law on the subject, it  explains what an “ex gratia” payment is, and it summarises the Law Commission report’s recommendations for reform. Changes to implement those reforms were incorporated in the Charities Act 2022 which became law on 24 February 2022 but its provisions reforming the law on ex gratia payments have not yet been brought into force. That was expected to happen in the Autumn of 2022, but it has not yet happened and H M Government has said that these provisions are under further consideration before they can be implemented. Implementation will occur when Regulations are made by the Secretary of State. At that point the Guidance Note will be updated to cover the changes to the rules on ex gratia made by the Act.   

The Regulations when made, will put on to a statutory footing the existing common law rules about ex gratia payments by charities and it will also reform those rules. The Act when implemented by the Regulations will provide that an ex gratia payment can be made if the charity trustees “could reasonably be regarded” as being under a moral obligation to make it. That test is based on the decision in Re Snowden [1970] 1 Ch 700. (If trustees are of that view, they are not legally bound to make the payment but they may do so.) In place of the current blanket legal requirement for a charity to obtain the consent of the Charity Commission in all cases in order to be able to make an ex gratia payment, however large or small, the Act will introduce exceptions to the need for involvement of the Commission. It will create thresholds for the amount of a payment permitted in any case so that if the intended payment is below the relevant threshold, the charity may make the payment without involvement of the Charity Commission.

The payment threshold applicable will depend on the charity’s gross income in its last financial year, as follows.

Gross income - Maximum payment permitted

Up to £25,000 - £1,000

£25,001 to £250,000 - £2,500

£250,001 to £1,000,000 - £10,000

Above £1,000,000 - £20,000

Note that the payment refers to the maximum amount of any particular payment that may be made. So, for example, if a charity with gross income in the last financial year of, say, £200,000 makes an ex gratia payment in the current year of, say, £2,000 and another separate ex gratia payment in the same year of £2,200, the payments will fall within the new rules despite their total exceeding £2,500 since each of the two payments is less than £2,500. If the amount of any one intended payment would exceed the relevant threshold, a charity must obtain prior consent of the Charity Commission in the case concerned (See its guidance on applying for consent here, at paragraph 10). The thresholds can be amended in future by further regulations.

Once the implementation date for the new rules on ex gratia payments is known - the Government has not indicated when this might be announced or what the implementation date might be - and if any supporting legislation is subsequently passed which impacts on the provisions discussed above, this page will be updated to reflect that impact.

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