Why form a Charity?
In order to answer this question we need to be clear what a charity is:-
What is a charity?
In order to register a charity with the Charity Commission the organisation must have, and carry out, wholly charitable purposes and activities. Not all purposes, even those that may be beneficial or philanthropic, are necessarily charitable. Registration as a charity will not succeed if it has some purposes which are charitable and others which are not.
Whenever an organisation exists exclusively for charitable purposes for the benefit of the public. (i.e. for the benefit of others), it is considered to be a charity. Charitable purposes are currently defined as:
- (a) the prevention or relief of poverty;
- (b) the advancement of education;
- (c) the advancement of religion;
- (d) the advancement of health or the saving of lives;
- (e) the advancement of citizenship or community development;
- (f) the advancement of the arts, culture, heritage or science;
- (g) the advancement of amateur sport;
- (h) the advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity;
- (i) the advancement of environmental protection or improvement;
- (j) the relief of those in need, by reason of youth, age, ill-health, disability, financial hardship or other disadvantages;
- (k) the advancement of animal welfare;
- (l) the promotion of the efficiency of the armed forces of the Crown or of the police, fire and rescue services or ambulance services;
- (m) other purposes recognised as charitable under the existing law and any new purposes which are similar to another prescribed purpose.
All charities must operate within the constraints of charity law. They have to obey a number of rules, which include regulations covering trustees, accounts, finances and management. Company law applies as well to charities run as companies.
- Are set up for a charitable purpose
- Are not profit-making – so any surplus they may make must be used only to further the organization’s purposes
- Are independent – that is, they are not a part of any governing department, local authority or any other statutory bodies
Advantages of becoming a charity
You can obtain tax relief on:
- Income tax (on gifts given)
- Corporation tax
- Stamp duty
- VAT (in limited cases)
- Capital gains tax
- Inheritance tax
- Many charitable trusts and foundations, as well as some businesses and corporations, will only give to registered charities.
- The public perceives registered charities as being more credible than organizations which are not registered. This may raise the public’s confidence in your organization, and help you attract more volunteers and benefit your fundraising.
Disadvantages of becoming a charity
- Charity law imposes high standards of regulation and bureaucracy.
- Trading, political and campaigning activities are restricted.
- A charity must have exclusively charitable aims. Some organisations may carry out their aims by a range of activities, some of them charitable, some of them not. To become a charity, this type of organisation would have to stop its non-charitable activities. (The non-charitable activities can, of course, continue if carried on by a separate non-charitable organisation.) Promoters will need to consider carefully if becoming a charity will severely restrict their planned activities. If so, charitable status may not be right for your organisation.
- Strict rules apply to trading by charities
- Trustees are not allowed to receive financial benefits from the charity which they manage unless this is specifically authorised by the governing document of the charity or by the Charity Commission
When must you register a charitable organisation with the Charity Commission?
If your organization has a charitable purpose and an annual income of £5,000 or more then you must apply to register as a charity with the Charity Commission. We give you all the help you need in setting up a charity.
If your organization’s income is below this threshold, the Charity Commission will not usually register you. However, under changes brought in by the Charities Act 2006, small charities will eventually have the right to register as a charity voluntarily. This right has not yet come into force. The Charity Commission recognizes that some charities may have a particular need to be registered charities, so in the meantime, they will consider requests from these charities on a case by case basis.
If having read this you now just wish to make further enquiry or you have made up your mind to proceed to register a charity and acquire a registered charity number please go to our Register Your Charity page.