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Driven to start up a new charity? This is what you need to know about your legal and tax obligations!

There are over 400,000 charities in the UK working hard to benefit different segments of society.  You may be aware of a gap in provision and have the passion and drive to start up a new charity. This is what you need to do to establish your charity and the laws that govern charities in the UK.

Setting up a new charity

There are 6 steps to setting up a charity in England.

  • Find trustees for your charity – you usually need at least three trustees but they have to fulfil certain criteria. You will need a job description, agreed roles and responsibilities and a recruitment process.
  • Make sure the charity has ‘charitable purposes for the public benefit’. You cannot set up a charity to benefit just one person.
  • Choose a name for your charity. The official name of your charity is known as its ‘main name’. Your charity may also have a ‘working name’ which is another name it uses.
  •  Choose a structure for your charity. There are 4 to choose from:
  • Charitable company – Trustees have limited or no liability for a charitable company’s debts or liabilities.  You need to apply online to register a charitable company with Companies House.
    • Charitable incorporated organisation (CIO) – a CIO is an incorporated structure designed for charities. You create a CIO by registering with the Charity Commission. You do not need to register with Companies House. Trustees have limited or no liability for CIO debts or liabilities.
    • Charitable trust – a ‘charitable trust’ is a way for a group of people (‘trustees’) to manage assets such as money, investments, land or buildings.
    • Unincorporated charitable association – an ‘unincorporated charitable association’ is a simple way for a group of volunteers to run a charity for a common purpose. Unincorporated charitable associations cannot employ staff or own premises.
  •  Create a ‘governing document’ to explain how your charity is run. Your governing document lets trustees and other interested parties find out:
  • your charity’s purpose
  • who runs it and how they run it
  • how trustees will be appointed
  • rules about trustees’ expenses
  • rules about payments to trustees
  • how to close the charity

What type of governing document you need depends on your charity structure.

  • Register as a charity if you are in England or Wales and your annual income is over £5,000 or if you set up a charitable incorporated organisation (CIO). You will need to supply lots of information including your registered address and bank account details.

There are different rules in Scotland and Northern Ireland.

Are there any laws for Charities in the UK?

Depending on your legal structure, you will have a governing document, constitution or Memorandum and Articles of Association. You have to adhere to the guidance set out in these documents.

As well as this, there are various Acts and regulations that charities must comply with, which cover different aspects of running a charity from fundraising to trading. These are:

Charitable companies (those incorporated as a company limited by guarantee) must comply with provisions in the Companies Act 2006. Additional requirements include filing details of trustees as directors at Companies House.

Charitable Incorporated Organisations (CIOs) were established in the Charities Act 2011, and the details for how CIOs operate are set out in secondary legislation including the Charitable Incorporated Organisations (General) Regulations 2012.

Charitable trusts – trustees of these structures will primarily need to comply with the Trustee Acts 1925 and 2000.

Does a Charity have to be registered with HMRC?

You can choose to register your charity’s details with HMRC but you have to register if you want to claim tax relief, for example, on Gift Aid donations. You may need to register with the Charity Commission before you register with HMRC.

Does a Charity have to pay tax to HMRC?

As a charity, you do not pay tax on most of your income if it is used for charitable purposes.  This includes tax on donations, trading profits, rental or investment income or when you buy property.  Community amateur sports clubs (CASCs) receive different tax reliefs.

Charities have to pay tax on profits from developing land or property and purchases – but there are special VAT rules for charities. Charities pay business rates on non-domestic buildings, but they get an 80% discount. To get tax relief you must be recognised by HM Revenue and Customs (HMRC).

As experienced charity accountants, we are happy to guide you with your tax obligations to HMRC.

Call HB for help

If you want to discuss the specific accounting requirements for charities, learn about gift aid or to discuss charitable giving from your own business, do give us a call. Not only can we help with your questions, we can offer you support with your tax, management accounting and so much more. You can contact us on 01992 444466.  We’re accountants for businesses and for people. We’re here to help.

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The information contained above is for general guidance purposes only. Whilst every effort has been made to ensure the contents are accurate, please note that each individual has differe

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