Registering a charity in the UK can bring benefit from reduced business rates, tax reliefs, and certain types of grants and funding. However, charities are required to operate within specific regulations and restrictions, and setting up as a charity may not always be the best option for an organisation to take.
An organisation cannot describe itself as a charity unless it is registered with one of the UK’s three national charity regulators.
The three charity regulators in the UK are
- the Charity Commission for England and Wales
- the Charity Commission for Northern Ireland
- and the Office of the Scottish Charity Regulator (OSCR).
When registering as a charity in the UK, an organisation must provide the relevant regulator with evidence that it operates wholly for charitable purposes and public benefit.
The requirements that must be met before applying to register a UK charity, which include defining its charitable purpose, choosing a legal structure, writing a governing document and appointing trustees.
Defining the charity’s purpose
In order to be registered as a charity in the UK, an organisation must pass the ‘charity test’, which means demonstrating that it operates for charitable purposes and for the benefit of the public or a sufficient proportion of the public.
The charitable purposes that are recognised under charities legislation for example
The prevention or relief of poverty, advancement of education, advancement of religion, advancement of health or the saving of lives, advancement of environmental protection or improvement
An organisation’s charitable purpose must be stated in its governing document. The regulator will use this purpose statement to determine whether or not the organisation can be registering as a charity in the UK. The statement must make clear the organisation’s aims, how they will be achieved and who will benefit.
Choosing a legal structure for the charity
The legal structure of a charity determines how it operates, including who will run it, who it can enter into contracts with, and how much liability trustees have. A charity’s structure is defined in its governing document.
It is important to choose the right structure for a charity to determine, for example, whether it will have a corporate structure or a wider membership.
A charity with a corporate structure has the legal capacity to enter into commercial contracts in its own name, own land and property, and employ paid staff.
A charity with an ‘unincorporated’ structure can’t enter into contracts in its own name, and its trustees are personally liable for what it does. With a wider membership members can vote on important decisions. Without a wider membership the trustees are responsible for making decisions.
There are four main types of charity structure:
- Charitable company (limited by guarantee). A corporate body with or without a wider membership. This is similar to a limited company, except it cannot be limited by shares, cannot distribute profits to members, and can only operate for its charitable purposes.
- Unincorporated association. Without a corporate structure, but with a wider membership. This structure is generally only suitable for organisations with relatively small assets.
- Charitable incorporated organisation (CIO). An association CIO is typically a corporate body with a wider membership. A foundation CIO is a corporate body without a wider membership, where the only members are trustees.
- Trust. Without a corporate structure or a wider membership. Suitable for organisations that don’t need to enter into contracts or employ staff. Organisations with this type of structure must submit a trust deed specifying money, land or other assets that the charity will start with.
Drawing up a governing document
A charity’s governing document is a legal document that sets out the charity’s purpose and how it operates. Depending on what legal structure a charity has, the governing document may be a trust deed, constitution, memorandum and articles of association, or other formal document.
In general, the governing document should contain the following information:
- The name of the charity.
- Its charitable purpose.
- What powers it has to carry out its purpose, for example taking out loans.
- How many trustees it will have and how they will be appointed.
- How meetings will be held and how votes will be made.
- Who can be a member where applicable for charities with wider memberships.
- How its financial requirements will be met, for example with regard to accounting.
- Rules regarding trustee benefits, for example from investments.
- Amendment provisions setting out how the governing document can be changed.
- Dissolution provisions setting out how the charity can be closed down.
Charity regulators provide model governing documents. It is important to choose the correct model document for the type of structure the charity will operate under.
A charity’s trustees (who may also be known as directors, governors, committee members or board members) are responsible for managing the charity and making decisions about its operation. The charity’s governing document must set out the number of trustees it will appoint.
It is usually necessary to have a minimum of three.
Registering as a charity
Once an organisation has determined its purpose, decided on a legal structure, drawn up its governing document and appointed its trustees, it can register as a charity. The registration process differs slightly in England and Wales, Scotland, and Northern Ireland:
In general, applications submitted to charity regulators must provide the following information:
- The charity’s name and contact details.
- The charity’s bank or building society account details.
- A copy of the charity’s governing document.
- A list of trustees, with contact details and signed declarations from each trustee stating they are willing and eligible to act as trustees.
- If the charity is a company, a copy of the certificate of incorporation and memorandum of association.
- Proof that the charity’s annual income is over £5,000, unless it is set up as a charitable incorporated organisation (CIO).
Supporting documents such as trustee declaration forms and proof of income can be uploaded as required during the application process.
- In England and Wales, organisations can apply online to register with the Charity Commission for England and Wales at www.gov.uk/guidance/how-to-register-your-charity-cc21b.
In order to be eligible for tax relief, charities also need to register with HMRC. This can be done online. Go to www.gov.uk/charity-recognition-hmrc for more information.
Annual reporting requirements
Registered charities must submit an annual return to the relevant national regulator each year. Typically this must include a trustees’ report, accounts and (in some cases) an independent examiner’s report or external audit report.
However the information that each charity is required to provide varies according to its annual income and legal structure.
Detailed guidance about the information that must be submitted is available from the charity regulators, as follows:
- Charity Commission for England and Wales: www.gov.uk/guidance/prepare-a-charity-annual-return
Alternatives to registering as a charity in the UK include setting up as a community interest company (CIC) which can benefit from similar reliefs under less restrictive regulations.
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