Charity set-up & Advice

How to start a charity - 4 key points to When starting a charity

1. Trustees

When starting a charity you have to get a group of “Trustees” together to manage the charity. There must be a minimum of 2 people, but is usually best to have more. It is important to have trustees who are enthusiastic and passionate for the charity to achieve its aims. It is also helpful to have people who have particular skills to bring to the management of the charity.

For example, an accountant can help with finances; a business person could help with marketing and business planning and a solicitor could help with any legal issues.

It may also be useful to have trustees who have experience of the causes you are furthering, so if you are running a charity for people for disabilities, then it may be helpful to have a disabled person acting as a trustee, as it is likely that they will know who to help those people in the best way. We can help in trying to find you trustees with the relevant skills.

2. Governing Document

You will need to have a “Governing Document”. This is a legal document that sets the rules for how the charity will operate and manage itself. One common form of governing document is a Constitution and this is great way of managing a Community Centre, for example;

there are other types of governing document and we can advise you which is the most suitable for your charity and we can also provide the actual documents themselves.

3. Charitable Purpose

You will also need to be clear on what your “Charitable Purpose” is before you start. For example, your charity may be helping people in poverty, or may be helping children in Africa to get a better education. There are strict legal criteria on what is charitable and what isn’t. Not everything that is good for the community for example, may be charitable.

We have a clear understanding of what the law considers to be charitable and therefore can give you the precise wording that you will need to go on and become a charity.

4. Banking

The last major thing you will need when starting up a charity is have a bank account in the name of the charity. At this stage you will not be able to open a “Charity Account” as you are not yet a charity. However, you can open a “treasurer’s” account or a “Community” account. Many high street banks and building societies have such accounts and we can advise of those in your area which offer you this service.

Formations of Charities includes
Community Interest Company:
A Community Interest Company (CIC) is a limited company, with special additional features, created for the use of people who want to conduct a business or other activity for community benefit, and not purely for private advantage.

A community interest company (Or CIC) Is not a charity and therefore cannot claim gift aid. This also means an individual cannot claim Gift aid on the Payment. A CIC cannot apply to HMRC for Gift Aid Status.

Can a CIC apply for funding?
Social enterprises, Charitable Incorporated Organisations (CIO) and Community Interest Companies (CIC) are eligible as long as they are not-for-profit or any profit is reinvested in the organisation. This should be clearly stated within the organisation's governing documents.

Are donations to a CIC taxable?

CICs are taxed in the same way as normal companies. They are subject to corporation tax and VAT and a CIC that makes donations to charity can deduct this as a charge when calculating its profit for corporation tax purposes.

What's the difference between a CIC and a charity?

A CIC is expected to make a profit/surplus whereas a charity is considered as a not for profit which should not profit from the work it carries out. CICs are expected to reinvest their surpluses to do more of their work but can also pay a proportion of this out to the owners or investors.

Can a CIC pay its directors?

A major advantage of CICs is that their directors can be paid a salary, which means that the founders of the CIC can retain strategic control of the enterprise by sitting on the board as paid directors.

What is the difference between a CIC and a limited company?

A community interest company (CIC) is a non-charitable limited company set up with the purpose of benefiting a community or pursuing a social purpose. This differs to a regular limited company which is set up with the purpose of making a profit for shareholders.

How many directors does a CIC need?

If your CIC is limited by shares, you can only have one director and shareholder. A CIC that is limited by guarantee should have at least two directors or trustees. Depending on the bank or funding body you're working with, they may require three.

How does a CIC make money?

A Community Interest Company (CIC) limited by guarantee with no share capital (CLG) has no shareholders. CLGs usually raise funds through grants or donations, rather than from shareholders.

Can CIC receive donations?
Yes, social enterprises can accept donations. Their treatment depends on the legal structure the social enterprise has and where the donations came from (individuals or businesses) and whether the donation is money, services, goods or other items
To set up a CIC, you’ll need:

A ‘community interest statement’, explaining what your business plans to do an ‘asset lock’- a legal promise stating that the company’s assets will only be used for its social objectives, and setting limits to the money it can pay to shareholders.

A constitution - you can use the CIC regulator’s model constitutions to get your company approved by the community interest company regulator - your application will automatically be sent to them.

The CIC regulator has guidance on setting up a CIC.

Further information
Get advice and case studies from Social Enterprise UK, Inspire2Enterprise and UnLtd or download guidance on business structures for social enterprises.

2. Community Interest Organisation
1.1 New form of corporate body

Is a CIO an exempt charity?
As all CIOs have to register, a CIO cannot be an exempt charity. A CIO does not come into existence until it has been registered by the Charity Commission. A CIO must have a registered principal office situated in either England or Wales.

What is a CIO UK?

A Charitable Incorporated Organisation (CIO) is a corporate form of business designed for (and only available to) charitable organisations in the United Kingdom. CIO status is conferred by the Charity Commission on application by a charity, whether new or existing. This aims to reduce bureaucracy for the charity.

A CIO is an incorporated structure designed for charities. You create a CIO by registering with the Charity Commission. You don't need to register with Companies House.

What is the benefit of a CIO?

The CIO structure offers important benefits of having separate legal personality and trustee limited liability, and can be seen to be cheaper and easier to set up and administer than a company limited by guarantee.

Does a CIO have directors?

CIO members still have key rights in law and under the Constitution and trustees are still responsible for managing the organisation (note that trustees for CIOs will only be trustees, they will not have the dual role of Company Director).

How many trustees should a CIO have?

For good practice, a CIO should have at least three charity trustees. If the number of trustees falls below the minimum specified in the constitution, the provisions in clause 12(3) will enable the remaining charity trustees to appoint new trustees and prevent the CIO from becoming inoperable.

Do trustees need a DBS check?

They require all trustees to have an enhanced DBS check. Any Trustee who is also involved in the delivery of its regulated activity will have an enhanced DBS with barred list check. The Charity Commission has published a declaration form which must be signed by charity trustees who apply for registered charity status.

Do Charitable Incorporated Organisations pay tax?

However, charitable companies, charitable unincorporated associations and charitable incorporated organisations (CIOs) are required to complete and submit corporation tax returns if: (1) they have non-exempt taxable income on which corporation tax would be due, or (2) HMRC issues a request for a Company Tax Return.

How long does it take to set up a CIO UK?

Whilst we cannot give an exact timeline, the Charity Commission says that it usually makes a decision within approximately 40 working days from the date of an application. However, individual cases may take longer

Can CIO trustees be paid?

It is a fundamental rule that, except in certain specified circumstances, trustees cannot receive any benefit from the charity. ... However, a trustee cannot be paid for performing his or her duties as a trustee, such as participating in trustee meetings. Nor are they allowed to become a paid employee of the charity

Does a CIO have to do a tax return?

A charitable incorporated organisation (CIO) has been available in England and Wales since January 2013. Accounts need to comply with the Charities Act 2011, the Charities SORP and the FRSSE. Accounts and Annual Return need to be filed at the Charity Commission within 10 months of the year end.

Can a CIO reclaim VAT?

Assuming the charity is VAT registered it may reclaim VAT on any purchases that are directly related to any VAT-taxable goods or services it sells. However, VAT-Registered charities are quite rare as the vast majority of their income will be exempt and therefore outside the scope of VAT.

Tax and audit requirements
The other big difference is tax relief.

Charities are exempt from tax on most types of income and gains, including donations, trading profits, rental or investment income, as well as tax when they buy property.

CICs, meanwhile, are liable to corporation tax. They can claim normal corporation tax reliefs, but there are no specific exemptions or reliefs available for them.

This comes with the trade-off, however, that charity accounts tend to be placed under more intense scrutiny than CIC accounts. Charities are required to have an audit if their gross income exceeds £1 million, or if it exceeds £250,000 and their gross assets are more than £3.26m.

Charities below these thresholds can opt out of a full audit, but those with a gross income of more than £25,000 are still required to undergo an independent examination. In some instances, funders will also require charities to be audited, or it might be a requirement of the charity’s governing document.

CICs are subject to the same regulatory requirements as companies, so they are exempt from an audit as long as they meet at least two of the following criteria:

Their turnover is less than £10.2m
Their total assets are less than £5.1m
They have less than 50 employees.

In summary: Charities benefit from more tax exemptions and relief than CICs, but they are more likely to require an audit or independent examination.

Purpose

To set up a CIC, you’ll have to explain how the company will provide a benefit to the community, what your activities will be, and why they will help. Most organisations with a social purpose are likely to pass the CIC Regulator’s test for this, which is based on whether a “reasonable person” might think the company’s activities are for the benefit of a community.

The term ‘community’ can also be fairly broad – you might be working for the benefit of a particular town or region, or for a group of people such as those within a particular age bracket or people with disabilities.

The only limitations are that the CIC’s activities can’t be about political campaigning, and they can’t exist only for the benefit of members of a particular body, or the employees of a particular employer.

For instance, a sports club set up for company employees won’t be considered a CIC, unless it provides some other benefit to the community at large.

How to set up a CIC

To form a CIC, you’ll need to apply and be approved by the CIC regulator. You can register online with Companies House or apply by post. To apply, you’ll need a ‘community interest statement’, which explains what your business plans to do for the benefit of the community.

You’ll also need an ‘asset lock’, which is a legal promise stating that the company’s assets will only be used for a community benefit. This also sets limits on the money your company can pay to shareholders.

What are your other options?

If you’re not sure whether a CIC structure is right for you, it’s worth considering some of the other ways you can structure an organisation with a social purpose.

These include:

Limited company
Charity
Co-operative
Sole trader or business partnership
Unincorporated association (for small organisations that don’t intend to make a profit And you’ll need a constitution, which you can base on one of the CIC regulator’s model constitutions.

Please get in touch today if you would like more information on how to start your own charity.

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Registering a charity

If you are considering registering a charity it’s important to remember The Charity Commission can only register organisations that do only charitable works. What is charitable is laid down in law and this can be complex.

We have a comprehensive knowledge of what can be a charity and what can’t. We can advise as to whether what you are doing or hope to do can be charitable or not, there by saving you time and effort, not to mention money.

Whether or not you have already set up a charity we can offer expert advice and guidance on the steps necessary for registering a charity.

Help and advise on registering a charity in the UK

In most circumstances, with our in-depth knowledge, we can ensure that the application you make will be able to achieve charitable status. We won’t waste your time if it is not possible, alternatively we will advise what activities you could do in order to become a charity.

We will ensure that we provide the Commission with all the necessary information and documentation at the time of application to avoid unhelpful delays wasting your time and which will allow you to get on with running your charity just as soon as you can.

We can provide you with professional help and guidance to ensure your charity gets the best possible start.