Do you have an idea to help your community or are you running a local voluntary group?
Are you thinking about setting up a new charity?
What are the pros and cons of registering a charity?
I get asked about this a lot; and I mean a lot. Clients I have helped with charity registrations or governance matters frequently recommend us to their friends and colleagues for advice on registering a new charity. It would be oh so easy to make some quick money by helping people set up a new charity whether they need to or not, but we would never, ever do that. Aside from the ethics involved, we believe passionately in the value and importance of the charity sector and voluntary action more generally. Maintaining the integrity of the sector and helping people make a difference safely and with the least possible fuss is what we are all about.
Why then do people assume setting up a charity is the way forward for their idea? Is it the tax breaks charities get? Is it so they can access more funding for their idea?
In my experience it’s both and more. There certainly can be tax and funding advantages to running a charity but there are also significant obligations. Charities must follow charity law and do only things that are charitable in law. Charities must be run by Trustees, who have important legal duties, generally cannot benefit personally from the charity and must ensure their decisions are independent of the interests of other organisations.
While these need not be onerous obligations, they sometimes can be, so Trustees need to understand what’s involved. Equally, it can be these very obligations that drive people to want to set up a charity; to protect the charitable funds they raise and ensure they are only used for the purposes for which they were intended.
So the decision whether or not to set up a charity is, first and foremost, one of whether you can legally do so and then one of whether the benefits of doing so (if there are any) outweigh the obligations that come with charity law. Sometimes these are simple considerations and sometimes they can be complicated and there can be other issue to think about, for example whether you want to make a living out of your idea and how your idea might develop in the future. If you aren’t familiar with the technical ins and outs of charity law as they apply to your idea or group, you really should get professional advice.
What are the alternatives to setting up a new charity?
In some circumstances there may be no alternatives because what you are, or will be, doing is exclusively charitable and there is a requirement to register the charity. This is relatively rare however.
It may be that you want to earn a living from your idea or undertake some activities that are not exclusively charitable in law. Setting up a social enterprise could be a better option, or even simply setting up a small business with a strong ethical and community driven purpose.
It may be that a charitable vehicle is the right way forward but that one already exists. Another charity may be prepared to “take you under their wing”, for example by setting up a named fund within their charity or by providing all the required infrastructure and governance within their structures.
how do i set up a new charity?
If you conclude that setting up a new charity is the right way forward and that you need to register it (generally because it will earn more than £5000 a year) then there are various matters to settle before you apply to the Charity Commission for registration. You will need to:
Decide on the charity’s purpose.
Find Trustees who are willing to take on responsibility for the new charity.
Choose the right structure for the charity.
Prepare a governing document and choose a name.
Determine where the funding will come from.
Ensure you have all the right arrangements in place to safeguard children or vulnerable adults, if that is relevant.
Having done all that you need to apply to the Charity Commission to register the charity. This is not difficult in principle but the form can be confusing or obscurely/technically worded at times and the questions often don’t quite fit with the specifics of the charity you have in mind. In recent years I have been asked on a number of occasions to “rescue” applications that have run into trouble due to misunderstandings either by the applicant when interpreting the questions or by the Charity Commission when interpreting the responses. Again, unless you are familiar with the technical ins and outs of charity law and the application process it really is worth getting professional help with your application. Unless you are proposing something complicated or unusual it shouldn’t be very expensive.
what happens after i have set up a new charity?
Even after registration, the work required to set up a new charity doesn't end. For example, you’ll need to:
Open bank accounts - much more easily said than done these days.
Register for Gift Aid with HMRC (unless you won’t be taking public donations).
Put in place the right (and proportionate) policies for your charity, including financial controls.
Make sure you know when and how to file returns with the Charity Commission.
Put in place all necessary arrangements for employing and paying staff (if you will have any).
Apply for Business Rate relief if you will be occupying property.
Of course you’ll also want to get your project/idea going, by raising funds and recruiting volunteers or staff to deliver it. Again these need not be onerous tasks (although banks seems to make it so these days) but you may need some help if it’s all new to you and your Trustees.
Setting up a new charity can be an exciting and inspiring journey for you and your colleagues, so if it’s right for your idea or group go for it and we wish you every success in make a difference for your community. Depending on the scale, type and complexity of your idea or group the overall process need not be overly onerous, but it does need to be done properly and you do need to understand how to run the charity once it is set up. If you would like to find out more about whether and how to set up a new charity or would like our help and advice to do so, please contact us at email@example.com to arrange free initial telephone discussion.