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Should I set up a charity? According to the Charity Commission, a charity is an organisation set up to benefit the public through:

• the relief of financial hardship;
• the advancement of education;
• the advancement of religion;
• certain other purposes for the benefit of the community.

The advantages of being a charity include:

• people are more likely to offer time, energy or money to a registered charity;
• many grant-makers and other funders only give to charities;
• many organisations offer free or discounted help and advice to charities;
• charities receive a wide range of tax breaks, including the ability to reclaim Gift Aid.

The restrictions and rules include:

• the organisation must operate strictly within the limits set out in the governing document;
• the organisation cannot benefit anyone you have a relationship with;
• your ability to take part in political activities and trading with other companies will be limited;
• your organisation can't be set up for the benefit of a specific named individual or individuals;
• trustees cannot usually be paid or gain financially from the work of the charity;
• an annual return must be submitted to the Charity Commission each year, accompanied by examined or audited accounts, depending on the charity's size.

There is no requirement to register as a charity, unless an organisation wishes to be considered charitable. To become a charity in England and Wales you must apply to the Charity Commission for charitable status.

You may not register an organisation with an income of less than £5,000 as a charity, although the Charity Commission do publish a model small charity constitution which unregistered organisations can use.

The Charity Commission has a detailed section - called Start up a charity - of things to consider when thinking about setting up a charity, including: Is a new charity the best way forward? Are there existing charities with the same purposes and activities as yours?

The key requirements if you do set up as a charity are as follows:

• all charities must operate within the constraints of charity law;
• charities must have (and carry out) wholly charitable purposes and activities;
• all charities must be set up for the public benefit;
• charity trustees must understand what is expected of them.

What type of charity? There are three main types of charity, each founded on a different governing document:

 

Type of organisation created	Unincorporated association	Trust	Company limited by guarantee
Governing document	Constitution or rules	Trust deed, declaration of trust, deed of trust	Articles of association
Charity trustees are usually called	Executive or management committee members	Trustees	Board, council of management, directors
Legal points	Has no limited liability, no legal personality of its own (so trustees are liable for debts) and cannot own land or investments in its own name Legal advice is not normally required	Cannot own land or sign documents in its own name Legal advice may be required but may not be necessary	Incorporated with limited liability, so the law considers it to be a person. Can therefore own land and enter contracts in its own name. Directors are only liable for a nominal (specified) debt However, is subject to additional requirements of company law which an be onerous Legal advice is always required
Suitable for organisations where one or more of the following apply	Relatively small assets Local branch of a national charity Has a membership Trustees elected or appointed for a fixed period of time Trustees elected by members Views of local residents/councils/bodies need to be represented through membership or as users of the facilities Objects are to be carried out wholly or partly by the members	To be run by a fairly small group of people No time limit on trustees in office New trustees appointed by continuing trustees Organisation not going to rely on a membership for administration Simple administration Grant-making body only Land and buildings are to be held on trust for permanent use by the charity Restriction on spending capital	Quite large Will have employees (although other types can employ too) Will deliver charitable services under contractual agreements Will regularly enter into commercial contracts Will be a substantial owner of freehold or leasehold land or property
Documents required	Application form Declaration Copy of the constitution	Application form Declaration Copy of the dated, signed and witnessed trust deed	Application form Declaration Copy of the articles of association Copy of the certificate of incorporation Copies of any special resolutions showing amendments

 

The Charity Commission publication CC22 - Choosing and Preparing a Governing Document explores this in more detail and gives links to model governing documents, which can also be found here.

These model documents need to be adapted to your context, but the closer you stick to them the quicker and easier the registration process is likely to be.

Get your objects right. To be a charity your organisation must have purposes ('aims' or 'objects') which are all exclusively charitable. These objects are very important as they determine what your organisation can (and can't) do.

They need to be general enough that your organisation is not unnecessarily restricted, but specific enough that your organisation has a clear purpose and is definitely charitable.

The Charity Commission provide model objects ( Example charitable objects) which can be used or adapted as required.

Incorrectly, badly worded or non-charitable objects are by far the biggest cause for charitable applications being rejected, so care is needed.

Clearly using one of the model objects exactly 'as is' will ensure that the application is not rejected on these grounds, but it is very likely that you will need to adapt one of the model objects to your own context.

If, on receiving your application, the Charity Commission are not happy with your objects, they will contact you with suggested alternative objects which they are happy with.

You may be happy to complete the application with one of these alternatives, but don't be afraid to contact the Charity Commission to negotiate – they are usually very helpful in agreeing a set of objects which satisfy both your and the legal requirements.

Choosing the right trustees is very important. The Finding trustees page on the Charity Commission website contains detailed information, including excellent downloadable guides for potential trustees and information about finding trustees.

Broadly, trustees should:

• fulfil any requirements in, and be appointed in accordance with, your governing document;
• between them bring the skills, knowledge and expertise required to manage your charity;
• reflect the needs and experience of the people that the charity serves, particularly in diversity and background;
• fulfil any legal requirements (eg, CRB enhanced disclosures for trustees of charities working with children or young people) and good practice (eg, conflicts of interest, age, disqualification);
• be adequately inducted and trained - downloadable packs are available from the Charity Commission;
• communicate and liaise with those whom the charity exists to serve and with key partners.

The model governing documents include some requirements and stipulations about the appointment of trustees, and you may wish to add others – for instance, for an ecumenical project a clause could be inserted to ensure that there is a balance of trustees from the different supporting denominations.

It may also be a good idea where appropriate to include trustees from within the work itself.

Important note: If your organisation will be working with children, young people or vulnerable adults, every trustee must obtain a CRB enhanced disclosure before being appointed. More details at the Criminal Records Bureau.

Public benefit. As part of the application process you will be required to prove that your charity exists for the public benefit:

• There must be an identifiable benefit or benefits;
• benefit must be to the public or a section of the public.

Again, the Charity Commission provide detailed guidance on demonstrating public benefit at Charitable purposes and Public Benefit.

Using well-known charitable objects and/or an approved governing document also helps demonstrate public benefit.

You can now register online at the Apply to register a new charity page on the Charity Commission website. The process is fairly self-explanatory. You can save your application and return to it at any point before finally submitting.

Charity law states that all funds must be held in bank accounts in the name of the charity. The application form asks for the account details of the organisation's accounts.

One common hurdle is that most banks require a registered charity number before allowing you to open a charity bank account – but you cannot register a charity without the bank account details!

Some banks are better at dealing with this than others; amongst the best is CAF Bank (owned by the Charities Aid Foundation) - see their Banking for charities page.

CAF will issue you with provisional account details to use on the charity registration, before activating the account(s) on receipt of the charity registration number. They also provide competitive interest rates and are skilled in dealing with the particular requirements of charities.

Once you are registered as a charity, if you'd like to take donations online you can use the free Charity Choice service to accept and process online donations to your charity.

Gift Aid. Gift Aid allows charities to claim back the tax paid by a donor on a donation to the charity. Donors must have signed a Gift Aid declaration for the charity and full details can be found at Gift Aid: the basics on the HMRC website.

If you are going to employ somebody you will need to register with HMRC as an employer for tax purposes. The Employers page on the HMRC website includes comprehensive details and guidelines, including the 'new employer pack'.

More information

• Charity Commission
• Direct.gov
• HMRC (Charities)
• HMRC (Employers)

How can we navigate uncharted waters?

 

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