Find out what it means to be a charity and what to do if setting up a charity is the right option for you.
Step 1: decide if a charity is the right option
Charities exist to benefit the public. Because of this, charities:
- pay reduced business rates
- receive tax relief
- can get certain types of grants and funding
But charities are restricted in what they can do and how they work. For example, charities need to:
- follow charity law, which includes telling the Charity Commission and the public about their work
- do only things that are charitable in law
- be run by trustees who do not usually personally benefit from the charity
- be independent - a charity can work with other organisations but must make independent decisions about how it carries out its charitable purposes
By law, if you set up a charity you must apply to register it with the commission if it is a charitable incorporated organisation (CIO) or its annual income is more than £5,000, unless it is a specific type of charity that doesn’t have to register. The commission will take action to secure compliance if it identifies a charity which isn’t registered but should be.
If your charity isn’t a CIO and your income is under £5,000 you don’t have to register with the commission. But you can apply to HM Revenue and Customs to recognise your organisation as charitable so that you can claim back tax on things like Gift Aid donations.
Check that your type of organisation can be a charity. There is a broad range of not for profit organisations and social enterprises: not all of these are charities.
For example, a community interest company (CIC) or an organisation registered with HM Revenue and Customs as a community amateur sports club (CASC) can’t be a charity.
Check that being a charity won’t stop you doing things you want to do. For example:
- charity trustees are normally unpaid volunteers - they can only be paid where it is authorised
- charities can’t usually benefit anyone connected with the charity, for example giving work to a trustee’s family member or company, unless it is authorised
- charities can only have purposes the law recognises as being charitable - they can’t have a mix of charitable and non-charitable purposes
- charities can’t take part in certain political activities, such as campaigning for a change in government
- strict rules apply to trading by charities
- registered charities must provide public, up-to-date information about their activities and finances
- charities are outward facing - they can’t be set up to benefit the narrow interests of a closed group
LawWorks has produced a free video on when and how to set up and register as a charity.
Alternatives to setting up a new charity
There are over 160,000 registered charities in England and Wales and many more unregistered charities. Setting up and running a charity takes a lot of work. Alternatively, you could:
Work with an existing charity
You could contact an existing charity to see if it might be possible for you to work with it.
Use these services to find trustee and other volunteering opportunities in your area:
- Trustee Bank from the National Council for Voluntary Organisations
- Trustee Finder
- Trustee Works
- Find volunteer placements
Set up a named fund instead of a charity
Some charities will let you set up a named fund if you want to raise money for a one-off event such as a disaster.
This saves the time and effort of setting up and running a charity then closing it once the original need has been met. Depending on the charity, you can say where you want the money to go.
- Set up a donor fund - UK Community Foundations
- Set up a CAF charitable trust - Charities Aid Foundation
Set up a non-charitable social enterprise
A ‘social enterprise’ is a business that has social, environmental or community-based objectives and can have non-charitable purposes.
Step 2: decide on your charity’s purpose
If you choose to set up a charity, start by deciding what its purpose will be. Your charity’s ‘purpose’ is what it is set up to achieve - the reason it exists.
Your charity can have more than one purpose but it can’t have any purposes that aren’t charitable.
Your charity’s purposes are important because:
- they help the commission decide if your organisation is a charity and HM Revenue and Customs decide if it qualifies for tax relief
- they explain to the people who run, support or benefit from your charity what it does and who it helps
- your charity can only do things that carry out its purposes
You must run your charity in a way that’s consistent with and supports its purposes.
Charitable purposes: the law
To be a charity in England and Wales, everything it is set up to achieve must be charitable. This means each of its purposes must:
- fall within one or more ‘descriptions of purposes’
- benefit the public in general or a sufficient section of the public
Be aware that not everything that benefits the community or is a good cause is charitable.
Putting your charity’s purpose into words
Your charity’s purpose should say:
- what the outcomes of its work will be
- where these outcomes will happen
- how it will achieve these outcomes
- who will benefit from these outcomes
“For the public benefit, the relief and assistance of people in need (what) in any part of the world (where) who are the victims of war or natural disaster or catastrophe (who) in particular by supplying them with medical aid (how)”
List things the trustees can do to help the charity carry out its purposes (‘powers’) separately - fundraising collections, for example.
For more information, read How to write charitable purposes.
Step 3: choose a charity structure
Once you’ve decided on your charity’s purpose, you need to decide what organisational structure it will have.
There are four main types of charity structure:
- charitable incorporated organisation (CIO)
- charitable company limited by guarantee
- unincorporated association
It’s important you choose the right structure for your charity that fits with how your charity will operate. For more information, read Charity types: how to choose a structure (CC22a).
Step 4: write a governing document
Your charity’s governing document is the legal document that creates the charity and says how it should be run by setting out:
- its name
- its charitable purposes (‘objects’)
- what it can do to carry out its purposes (‘powers’), such as borrowing money
- who runs it (‘trustees’) and who can be a member (if appropriate)
- how meetings will be held
- how many trustees to appoint and how
- any rules about paying trustees, investments and holding land
- whether the trustees can change the governing document, including its charitable objects (‘amendment provisions’)
- how to close the charity (‘dissolution provisions’)
For more information on writing, using and changing governing documents, read: How to write your governing document (CC22b).
Step 5: choose a name
Your charity’s name is important. It’s your brand; what people will remember when they are deciding to make a donation or looking to volunteer.
As trustees, you are responsible for choosing the name for your charity. If you register your charity with a name that’s misleading or already used by another charity, the commission can make you change it. Your charity will be responsible for any costs involved.
For more information, read: How to choose a charity name.
Step 6: find trustees
Charity trustees are the people who serve on the governing body of a charity. They may be known as trustees, directors, board members, governors or committee members.
Your charity’s trustees are the people who will make decisions about how to run the charity once it is set up. They are responsible for the general control and management of the administration of a charity.
As a trustee, you must run your charity with as much care as you would manage your own affairs. That means making sure it’s solvent, well-run and meets the needs for which it is set up.
Recruit enough trustees to get the skills and experience you need. Your charity’s governing document should say how many trustees to appoint. The commission recommends a minimum of three unconnected unrelated trustees with a good range of skills.
For example, people who:
- have specialist skills like fundraising or finance
- have community contacts which might help attract volunteers
- understand or reflect the needs of the people your charity helps
For more information on trustee recruitment, read Trustee board: people and skills.
Step 7: fund your charity’s work
Start raising money for your charity once it’s set up.
Even a small charity needs a bank account. Lots of banks offer ‘treasurer’ or ‘community’ accounts – these are suitable for small, unregistered charities.
Unless your charity is a specific type of charity that doesn’t have to register, you must apply to register your charity with the commission once it has an income over £5,000. If your charity is a charitable incorporated organisation (CIO) you must apply to register it whatever its income.