At Impact Brixton, we see loads of incredible social changemakers come through our doors. And a question we get asked a lot is how to set up a charity in the UK.
In this comprehensive guide, we’ll walk you through the entire process of establishing a charity in the UK in 2023, from selecting the right structure to navigating regulations.
Whether you’re an aspiring philanthropist, a community leader, or simply someone who’s spotted a problem and thinks there should be a charity to provide a solution, if you’re wondering how to form a charity in the UK, this guide will explain everything you need to know.
What is a charity?
First of all, what exactly is a charity? In the UK, a charity is defined as a type of organisation that is set up to benefit society. This might mean tackling an environmental issue like global warming, or finding a solution to a social issue like housing or education.
A charity is different from a commercial or ‘for-profit’ business, and the primary distinction lies in their core purpose and how they utilise their resources. Charities are established with a non-profit mission, aiming to benefit society or address specific needs. They often have a distinct legal structure, rely on volunteer boards, use funds for their mission, enjoy tax benefits, and prioritise accountability. In contrast, for-profit businesses are profit-driven, existing to generate income for their owners or shareholders through various legal structures, and they are subject to regular corporate taxes.
When setting up a charity in the UK, the first thing you need to do is make sure that setting up a charity is the best solution for the problem you’re trying to solve. You might find that it would be better to set up a social enterprise or community interest company (CIC), so make sure you’ve done enough research to know that forming a charity is the ideal option. It’s really difficult to change the structure of your business once you’ve set it up, so it’s important to get it right!
Step 1: Choose a legal structure for your charity
Once you’re confident that forming a charity is the best choice, it’s time to delve into charity legal structure in the UK. The structure you choose affects the charity constitution and governance that you will have to follow, so it’s worth taking the time to understand the requirements!
Here is a clear and simple guide to the various charitable structures that exist in the UK.
1. Charitable Company
When it comes to charitable organisation formation, a charitable company is the dynamic go-getter of charity structures. It’s like a corporate body, set up as a private company limited by guarantee. Charity governance in the UK requires all charitable companies to be incorporated at Companies House and registered with the Charity Commission.
Once it’s been incorporated and registered, it becomes a distinct legal ‘person.’ This allows it to enter contracts and hold assets in its own name, relieving trustees of personal liability for the charity’s debts. So it’s great for protecting your personal income! It’s the go-to structure for larger charities with staff, substantial assets, and financial adventures, and ideal if your charity is taking a few financial risks on its way to success.
2. Charitable Incorporated Organisation (CIO)
CIOs are a modern, stress-free choice. They’re exclusively designed for charities and come with lots of perks. Like charitable companies, CIOs operate as separate legal entities, which means that they can employ staff, seal commercial deals, and hold assets under the charity’s name. This means that your trustees enjoy liability protection, so it’s an attractive offer when you’re trying to get your trustees.
The advantage of setting up a charitable incorporated organisation is that while they must register with the Charity Commission, they do not have to register with Companies House. So this is a great option if you want to enjoy some of the benefits of a charitable limited company without the burden of dual registration, regulation, and filing obligations.
3. Charitable Trust
Charitable trusts come with way less paperwork. They’re unincorporated, which means that there’s no separate legal identity from trustees. This can be a little more hands-on, as trustees are personally responsible for the charity’s actions and liabilities – which means that you’ll have to use your personal assets to pay any debts if your charitable trust runs out of money.
Trusts often suit smaller groups managing funds, investments, or property for charitable purposes. If your charity doesn’t foresee wide membership, property ownership, or staff employment, and won’t engage in commercial activities, charitable trusts are a sound choice. Registration with the Charity Commission is essential – but only if your annual income exceeds £5,000. It’s the ideal choice for small, grassroots organisations who don’t anticipate scaling up.
4. Unincorporated Association
Last but not least, there’s the unincorporated association. This is a super relaxed, communal option. An unincorporated association is essentially a group of like-minded volunteers working towards a shared goal, often of a social nature. They don’t need to fuss with Companies House, but should their annual income surpass £5,000 they will need to complete Charity Commission registration.
Unincorporated associations are rule-makers of their own game, offering a flexible operating environment. However, remember they have no separate legal personality. This means individual members are fully liable for any debts, contracts, and actions. It’s a cost-effective choice for those who aim to stay small and want to test the charity waters without a hefty price tag.
Step 2: Choose trustees for your charity
Trustees are the people who are responsible for leading the charity and deciding how it’s managed and run. Ideally, a charity should have at least three independent trustees.
When it comes to trustees and charity management, remember that your chosen trustees are legally responsible for the charity’s operations and ensuring that it fulfils its charitable objectives and remains compliant with relevant laws and regulations. Their key responsibilities include making strategic decisions, overseeing the charity’s finances, and ensuring its activities align with its mission. So it’s important to make sure that all trustees are ready and able to take on this role.
There are a few rules and regulations about who can be a trustee for a charity. You don’t need to be a UK resident, but there are a few age restrictions. For charities registered as limited companies or charitable incorporated organisations (CIOs), trustees must be at least 16 years old, while for trusts or unincorporated associations, the minimum age is 18.
By law, certain individuals are disqualified from taking on the trustee mantle or senior managerial roles due to various reasons, including criminal convictions, insolvency status, or past misconduct. But the Charity Commission may, in limited circumstances, grant exceptions to these disqualifications. So, when recruiting your trustees, seek out those with a genuine passion for your cause, the right skills, and a commitment to ensuring your charity sails smoothly towards its mission.
You can find further official guidance on who can and cannot be a trustee for a charity here.
Step 3: Choose a name for your charity
Choosing the right name for your charity is like selecting the face of your mission. It’s a fundamental part of your identity and a way for people to recognise and connect with your cause. Take your time with this step, as it’s worth the effort to make sure your chosen name is distinctive, unforgettable, and truly represents your charity’s ethos.
Now, let’s talk about the ground rules. Your main (official) charity name should be distinct from the names of other charities. Avoid using words or expressions without proper permission, like trademarked terms or ‘Royal’ designations such as King or Queen. And you’ll need to stay clear of offensive language or acronyms. You’re also required to make sure your name accurately reflects your charity’s actual activities to avoid misleading anyone
No two companies in the UK can have the same name – and that includes charities. You’ll need to search the charity register to make sure your name is unique.
Don’t forget that as well as your main charity name, you can also use working or alternative names, including abbreviations or acronyms. These can provide a more accessible and recognisable face for your charity while maintaining its true essence. When you’re ready to register your charity, be sure to provide these working or alternative names as part of your application.
Step 4: Create a governing document
Once you’ve chosen the perfect legal structure for your charity, the next thing you need to do is create a governing document.
In the UK, all charities are legally required to create a governing document. You’ll need a governing document to be able to register with the Charity Commission and other regulatory bodies, so it’s really important that you take the time to get it right.
Your governing document needs to clearly and thoroughly outline the following elements of your charity:
- Your organisation’s charitable purposes, which are known as its ‘objects’.
- Your charity’s trustees and who can be a member of your organisation
- How your charity is run
- The responsibilities, duties, and powers that your trustees undertake
- How your charity arranges and holds meetings
- How decisions are made within your organisation
- All of the rules and procedures for appointing and removing trustees
- All of the rules about expenses and payments made to trustees
- How the charity’s finances, assets, and investments will be managed
- How any internal disputes will be resolved, should they occur
- Detailed dissolution provisions in the case that the charity needs to be closed
The type of governing document that you create depends on the legal structure that you have chosen for your charity. If you’ve set up a limited company, you’ll need to create articles of association. If you’ve gone for a charitable incorporated organisation, you’ll need to put together a foundation or association constitution. If you’ve chosen to create an unincorporated association, you’ll need a constitution. And if you’re running a charitable trust, you’ll need to make a trust deed or will.
If that all sounds a little overwhelming, get in touch with the legal experts at Sistren Legal Collective. They specialise in helping anyone who is setting up a non profit organisation in the UK, including charities.
Step 5: Register your charity
You’ve almost there! Now it’s time to undergo the UK charity registration process. In England and Wales, the law mandates the registration of your charity with the Charity Commission under two specific conditions:
- If your charity has an annual income of at least £5,000.
- If it is structured as a charitable incorporated organisation (CIO).
Remember that if you’re embarking on a charitable journey in Scotland or Northern Ireland, you’ll encounter different sets of rules and processes. So make sure you’re hitting all of the legal requirements!
To complete the online application form, you’ll be asked for key details about your charity, including the official name, any alternative names you might be using, contact information, and particulars about your trustees.
Additionally, you’ll need to provide a PDF copy of your governing document, clearly stating your charitable purposes and the methods through which your organisation benefits the public. If your charity happens to be a company limited by guarantee, you’ll also need to submit your certificate of incorporation and memorandum. And don’t forget your bank or building society account details.
It’s also crucial that you provide a copy of your trustee declaration form. This form, signed by every trustee, confirms their eligibility to serve in this capacity. So don’t forget to attach it as a PDF file when submitting your online application!
Frequently asked questions (FAQs)
How long does it take to set up a charity in the UK?
The Commission aims to assess your application within 10 working days. However, it may take a bit longer.
Once you’ve submitted your online application to the Charity Commission, you’ll receive an automated email acknowledging its safe arrival. They’ll then make sure that your organisation truly needs to register as a charity, that all the applicable questions are answered in full, and that every piece of information you’ve provided is the real deal. They’ll also double-check that every trustee is fully eligible to hold that trustee title.
According to the Charity Commission Operational Standards, they aim to deliver a decision on most registration applications within 30 working days. But unfortunately that’s not a guarantee. The actual timeframe depends on their workload and the complexity of your application. So hang in there! Hopefully it won’t be too long.
What are the tax benefits for charities in the UK?
To get tax relief your charity needs to be recognised by HM Revenue and Customs (HMRC), so make sure you’ve taken care of that step first!
Charities do not pay tax on most types of income as long as they use the money for charitable purposes. You can claim back tax that’s been deducted, for example on bank interest and donations (this is known as Gift Aid).
To find out more about the tax requirements and deductions for charities, you can visit the UK Government’s website.
What are the annual reporting requirements for UK charities?
Charities in England or Wales must send an annual return to the Charity Commission or report their income and spending every year. The annual accounting requirements for UK charities differ depending on the type of charity and its finances. You can find out what you need to submit here.
You’ll also need to prepare an annual trustees’ report if your charity is registered in England or Wales. Along with your accounts, the report tells people about your charity’s work, where your money comes from, and how you’ve spent your money in the past year. It’s really useful for potential funders and beneficiaries.
What is the difference between a charity and a social enterprise?
Charities and social enterprises have distinctive purposes and structures. Charities primarily aim to benefit society or specific causes, focusing on delivering public benefits without distributing profits to individuals. In contrast, social enterprises operate as businesses with a core social or environmental mission. They generate revenue, but their profits are often reinvested to support their social objectives. Legal structures, governance, funding sources, and tax implications differ between the two. Charities rely on donations and grants, while social enterprises often combine earned income with grants or investments. The choice between these models depends on an organization’s primary goals and its approach to achieving them.
Do I need a registered business address to set up a charity?
Yes, you do! As with all registered businesses, it’s perfectly legal to use your home address for this – but you may not want to. When you register your charity on Companies House, your information is accessible to anyone who searches the Companies House register. This means that if you use your home address, anyone will be able to find it and view it.
Instead, consider using a Virtual Office like Impact Brixton. From just 0.41p per day, you can register your business using our address. That means that when people look you up, that’s what they’ll see – our location in London’s iconic Brixton Village as your charity’s address. It’s a great way to build a great reputation for your charity, and to protect your trustees’ privacy.
And that’s everything you need to know about how to set up a charity in the UK in 2023! If you’ve read this guide and you still feel like you need further guidance, don’t forget that you can book in for a 1:1 mentoring session with our founder Gerald when you purchase any of our Virtual Office packages for your business.
If you’d like to explore the option of setting up a limited company, take a look at our complete guide here!