Do you really want to set up a charity?

There are over 170,000 charities registered in England and Wales alone, not to mention Scotland and N Ireland.

In addition, there are thought to be approximately 10,000 that are exempt so do not need to register with the Charity Commission due to other regulation, and possibly 200,000 that cannot register with the Charity Commission because their income is less than ￡5,000.

With the total number of charities in the UK thought to be close to 400,000, you can understand that the public may question the need for any more.

The passion of people wishing to set up a new charity is often driven by an event in their own lives or someone close to them and they want to do something to help.

Is a new charity right for you?

Before jumping in and setting up a new charity, think about what you want to achieve. If it is to raise funds to support an individual, then this cannot be achieved by setting up a charity, as a charity’s aims must provide public benefit to a ‘class’ of people, perhaps defined by disability, geographical area or age, for example.

Perhaps this leads you to think that you will fundraise for that defined ‘class’. Again, this is a great idea, but fundraising in itself is not a charitable objective. You could set up a grant making charity so that, once you have raised funds, you are in a position to provide help to those that fit clearly defined criteria.

If this is your aim, you may want to think about whether there is a charity that already exists that would appreciate your fundraising efforts. You may conclude that you still want to create a ‘legacy’ or that you want more of your funds to be used on charitable activities than some charities appear to as a result of administrative costs, for example, that have to be incurred. In which case, it may be worth setting up a fund within a charitable foundation. Whilst costs are incurred, this has the advantage of the foundation:

• acting as trustees for the fund
• looking after the fund by way of investment
• helping find suitable beneficiaries that fit clear criteria

And it saves you:

• having to take on the responsibilities of trusteeship
• dealing with all the legal and statutory duties of setting up and administering the charity, particularly as your own motivation may decline with time.

More than fundraising

You may want your charity to be more than a fundraiser, providing specific facilities, events etc., for the beneficiaries. If you are still clear you don’t want this run by an existing charity, then there are options for you with regard to structure, e.g., you could operate as an unincorporated entity, a Charitable Incorporated Organisation or a Limited Company. Each of these has advantages and disadvantages, so understanding the options is a good starting point.

It is also important to have reliable trustees who not only understand the responsibilities of such a role but have the skill set and time to fulfil them. It is suggested that a minimum of three trustees are in place, so it is worth thinking about who would make suitable candidates.

You will need to prepare a constitution or trust deed – the actual form of this will depend on the structure the charity chooses to operate within. This will define not only the aims of the charity but also how the charity may operate.

Other things to think about include how set-up and ongoing running costs will be raised, whether the charity will have premises and who will perform the various operations of the charity etc. Following on from this will be considerations about compliance with employment law and the need for insurance.

When thinking about the activities of the charity, you should understand which ones may be deemed to be trading (particularly, but not exhaustively, from fundraising) and know the limits imposed on charities. Failure to understand this could lead to unexpected tax bills – this is when a trading subsidiary may help. Another important aspect to think about at this time is whether any of the activities could be seen as a conflict of interest – the activities must be purely to fulfil the aims of the charity, and those involved in the running of the charity should not be seen to benefit. With charities so much in the public eye, ensure everything you do is transparent from the outset.

Finally, don’t overlook tax – charities are not automatically exempt from taxes so seek advice about:

• Corporation tax and trading limits
• VAT

Advice may include whether you need to charge VAT and any need to register for VAT, as well as what your suppliers should charge you. Premises can be a particularly complex area, so please do ask for advice ahead of making decisions – this could save you time and save the charity money.

Here at Rickard Luckin, we have the experience to help you consider your options, establish a charity, advise on structure, and give you practical advice to get started. We will also be here to support you as your charity grows.