Setting up a charity is a great way to help a cause you are passionate about, or to give back to the community. However, you must make sure you meet the legal and formal requirements of starting a charity before you can legitimately proceed with your work.
Getting this right is important as charities are held to a high standard and you don’t want to be in violation of any rules. In these cases, you may end up being disqualified – keep reading to find out more.
What Is A Charity?
A charity is a not-for-profit organisation (NFP) that relies on donations or grants to operate. The purpose of a charity is to have some kind of public benefit, commonly referred to as a ‘charitable purpose’.
Feeding the underprivileged, providing free school supplies, building shelters, pro bono legal help and aiding with animal welfare are all considered charity work. A charity never earns a profit that results in economic benefit to their organisation – their sole purpose is to give.
Since they don’t receive a profit, you may be wondering how charities get funding – we’ll cover this in more detail later.
How To Start A Charity
For most of the UK, there are 6 key steps to starting a charity. If you live in Scotland or Northern Ireland, the rules are a little different, so we recommend checking out your local regulations.
The key steps are as follows:
- Deciding on a charitable purpose for you organisation
- Have a name for you charity
- Pick a charity structure (we’ll discuss this later)
- Have at least three trustees
- Establish a governing document
- Register as a charity if you meet the threshold
How To Register A Charity In The UK
A charity needs to be registered under two circumstances:
- The charity has an annual income that is over £5,000
- If the charity is a charitable incorporated organisation (CIO)
If you meet either or one of these criteria, then you will need to register your charity. It can be done online and will require providing all the relevant information and documents, such as:
- The purpose of the charity
- How it benefits the public
- Proof of income
- Trustee details
- Governing document
Who Is The Charity Commission?
The Charity Commission is the main regulatory body for charities in the UK. If you’re running a charity, the Charity Commission is one of the institutions you will need to engage with as they provide information on running a legitimate charity, process annual returns, have a charity register and are responsible for closing charities.
In order to access most of these services, you will need to set up an account with the Charity Commission.
Which Structure Do I Choose?
The legal structure of your charity will determine how it functions. The main types of charity structures are:
- Charitable incorporated organisation (CIO)
- Charitable company
- Unincorporated association
The limitations and abilities of your charity will depend on the kind of structure it has. For example, an unincorporated structure does not have the advantage of entering into contracts, whereas a CIO does.
It will also impact matters such as who can vote, the roles of trustees and more – be sure to do your research and pick a structure that aligns with your organisation’s goals.
Do Charities Pay VAT?
Yes, charities still pay Value-Added Tax (VAT) in most cases. However, they can qualify to pay a reduced rate or be completely exempt from paying VAT in some circumstances.
The reduced rate for VAT is 5%, and in order to pay 0% VAT, the purchase must be pre-determined for 0% VAT rate, such as an ambulance.
A more comprehensive list detailing what qualifies for reduced VAT and VAT exceptions can be found here.
Is A Charity The Same As A Not For Profit?
Technically speaking, no. While every charity can be considered an NFP, not every NFP will be considered a charity.
What Is A Not For Profit Business?
An NFP can have a primary goal or vision in which they use all their revenue or income towards aiding this purpose. However, a charity must be for public benefit.
As a result, while an NFPmay have a mission and not keep profit of their income, they don’t necessarily qualify as a charity based on that factor alone.
We’ve written more about the difference between a charity and a social enterprise.
Can Family Members Be Trustees Of A Charity?
There is no strict rule that prevents family members from becoming trustees to a charity. However, it is advisable to be as transparent as possible and address any potential issues that can arise, such as a conflict of interest.
It’s worth reading more into how to deal with potential conflicts of interest.
What Legal Documents Do I Need?
Every type of business needs legal documents to secure their business dealings and relationships.
The governing document details how your charity is run and contains important information, such as:
- How it will run and its charitable purpose
- Responsibilities of key personnel
- Appointment, rules and payment of trustees
- Shutting the charity down
Naturally, the kind of structure you pick for your charity will influence most of the above points, so it’s good to be clear on the advantages and disadvantages of each structure and which one is most appropriate for you before writing up a governing document.
The governing document will need to be signed by the trustees and submitted if you’re registering the charity so it’s important to make sure it’s up to the standard.
How Do Charities Get Funding?
Like we mentioned before, charities don’t earn a profit or operate for an economic benefit. So, how do they fund their business activities?
A charity’s income is largely dependent on donations from the public or fundraising. However, charities can also qualify for government funding. The government often provides grants for charities and yours could also qualify – keep an eye on government organisations that support charities.
Additionally, there are other private organisations that give donations to charities to allow them to continue their work. A search of the charities register can aid in narrowing down those institutions.
Clearly, funding for a charity can come from a number of different places – be sure to stay on top of it to give your organisation the best chance possible.
Charities are an honourable cause, however, it’s important to make sure you’ve done everything correctly and legally in order to avoid jeopardising the institution’s purpose.
To summarise what we’ve discussed:
- A charity is an organisation that works for a public benefit
- The Charity Commission regulates matters relating to charities
- If you’re starting a charity, you need to consider registration, structure and the governing document you need
- VAT reductions and exemptions can apply in some circumstances
- Charities attain funding through grants, fundraising and donations
If you would like more information on starting a charity, you can reach us at 08081347754 or [email protected] for a free, no-obligations chat.
Get in touch now!
We'll get back to you within 1 business day.