How to Form a Charity

When you get an ask from a charity, there’s usually fine print that says your charity donation tax deduction. There hundreds of thousands of charities currently operating from within the UK, providing a plethora of services to the public, both home and abroad. These organisations are run on a not for profit basis and provide invaluable benefits to the disadvantaged individuals where private and state organisations aren’t able to cater for their needs. However, if you are planning on setting up a new charity yourself you’ll need to be familiar with what constitutes a charity and how to achieve charitable status.

The first thing you need to consider before you begin to establish your charity is whether the organisation you wish to set up is suitable or would benefit from actually being a charity at all. Charities are distinct legal organisations that must operate within the confines of charity law and serve a purpose for the public. In lieu they benefit from a number of tax advantages such as exemptions and reliefs on income and capital gains tax.

The idea and definition of a charity is largely centered around the concept of public benefit and organisations can only be recognised as charities if their aims and subsequent benefits are deemed as being wholly in the public benefit. That essentially means that charities cannot be created to either wholly or partly benefit private individuals or groups of individuals where a charitable purpose is not demonstrated. For example, the aims and benefits of a charitable organisation cannot be politically oriented.

There is very detailed guidance provided by the Charity Commission as to which purposes may be considered in the public benefit on their website.

Furthermore, it may be more appropriate to combine you organisation with an existing charity to benefit from their expertise, registered status and economies of scale on running costs. If you are looking to offer your services or help with a specific cause it is likely that there is already a charitable organisation which addresses the issue and you may more effectively achieve you aims by working with them.

For example, if you are looking to carry out fundraising for a particular cause there is no need to set up a new charity for the exercise and instead you should look to work with an existing charity which already addresses that cause.

Once you have settled on the idea that the most appropriate status for you organisation is that of a charity, you then need to consider whether you need, would benefit from and/or would qualify from gaining charitable status from the Charity Commission.

A charity should only be registered with the Charity Commission to attain charitable status if its annual income exceeds £5,000. Organisations with a small income than this figure can still apply for the benefits that charitable status brings (see below) but would have to, for example, apply directly to the HMRC to enjoy the equivalent tax breaks. However, they would not then be required to comply with the commission’s regulations.

Becoming a registered charity with a registered number is evidence of a charitable status but is not the only defining feature. It does potentially enhance your organisations ability to access funds and give it increased credence and trust in the eyes of the public but there are restrictions with which your organisation will have to comply to become registered.

You therefore need to ensure that you meet the requirements for charitable status as defined by the commission before you do. As mentioned above, all charities organisations seeking charitable status must evidence aims and forecasted benefits that solely benefit the public and not private individuals and therefore cannot have any political affiliations or consequences.

Your organisation will also need to have a board of trustees (or governing body) in place. The exact terminology and titles involved for your trustees may vary but these trustees will essentially be accountable for the overall running of the organisation. They will therefore need to produce Annual Reports on the charity’s activities as well as ensuring that the organisation’s aims and activities are in the public benefit and are ultimately charitable. The names, addresses and dates of birth of the trustees will need to be included in the application to the Charity Commission and all trustees where the charity will be working with children and/or vulnerable adults must be CRB checked.

You will also need to think of the practicalities of choosing a name which suitably represents your organisation. To comply with the Charity Commission the name cannot be misleading and it goes without saying that it cannot be offensive in any way. Names must also be unique and you should check your desired name against the charities register for any matches. If any of these criteria are not met the Charity Commission can demand that you change it (although they won’t stipulate what it should be).

Having decided that your organisation should become, would benefit from and is ready to become a charity your next step is to apply for charitable status from the Charity Commission. The application must now be carried out online using the commission’s straightforward application process; at the end of which you will be given a reference number whilst your application is processed. You may also by required to provide additional documentation as and when requested by the commission before your registration is confirmed. All things being well you will receive a registration number within 10 working days.

The key to setting up anew charity is the preparation and ground work and being sure that the status of a charity is the most appropriate course for you organisation in the first place. It can therefore be worth getting advice from Charity Solicitors before embarking on the venture.

© Stuart Mitchell 2011

I’m a small business owner. If you are interested in finding legal advice in regard to establishing new charities then visit Charity Solicitors.

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