Capitalism has many checks and taxes to aid social welfare without hindering forward progress, but unfortunately many still fall through the cracks. Those who want to make a difference for these people have the option to set up a charity.
But what do you need when setting up a charity? In this article, Real Business will outline the legal requirements, essential governing documents, types of charity structure available and more to help you make an informed plan.
Table of Contents
How Do I Set Up A Charity?
To set up a charity, you need to gather some foundational requirements and have a plan that will keep your charity functioning. The following steps will outline these requirements.
1. What Is Your Charity’s Purpose?
The charitable purposes of your foundation must align with one of the thirteen outlined under the Charity Commission, the governing body of UK charities:
- The prevention or relief of poverty
- The advancement of education
- The advancement of religion
- The advancement of health or the saving of lives
- The advancement of citizenship or community development
- The advancement of the arts, culture, heritage, or science
- The advancement of amateur sport
- The advancement of human rights, conflict resolution, or reconciliation, or the promotion of religious or racial harmony, or equality and diversity
- The advancement of environmental protection or improvement
- The relief of those in need due to youth, age, ill-health, disability, financial hardship, or other disadvantage
- The advancement of animal welfare
- The promotion of the efficiency of the armed forces, police, fire, or ambulance services
- Any other purposes recognised as charitable under existing charity law and the decisions of the courts
2. What Is Your Desired Charity Structure?
There are four main types of charity structures:
- Charitable Incorporated Organisation (CIO) – This legal structure is designed exclusively for charities and is registered only with the Charity Commission. It combines the benefits of incorporation (limited liability for trustees), only with reduced administrative burdens.
- Charitable Company Limited by Guarantee – A corporate charity structure that offers limited liability, registered with both the Charity Commission and Companies House.
- Charitable Trust – This charity structure is used by those managing investments or properties. They are governed by a trust deed and managed by trustees, who are all personally and legally liable.
- Exempt Charity – This charity is exempt from Charity Commission registration. It still operates as a charity, but they are regulated by other bodies, such as universities regulated by the Office for Students.
3. What Are The Requirements To Apply For Charitable Status?
To apply for charitable status, you need the following:
- Governing document – The governing document is a constitution, trust deed or articles of association that outline the charity’s rules, purpose and structure. For a governing document template, check here.
- Three trustees – A trustee is an individual who is responsible for the management and decision-making within the charity, and you need at least three or more.
- Charity name – A name which complies with Charity Commission rules, meaning it must be unique, it must not mislead or be offensive.
- Proof of income* – An annual income of over £5,000.
- Financial details – A clear plan for managing funds, such as a budget and plan for funding.
- Contact details – Contact details and address for official communication.
4. Where Do I Apply For Charitable Status?
Technically anybody can set up an organisation that they call a charity foundation and begin giving money away, but to be trusted by third parties (including donors), you have to apply for charitable status.
Application is easy. With all the requirements at hand, simply go to the charity commission page on GOV.UK and create an account there.
Once you are accepted, congratulations, you can count yourself among registered charities in the UK.
What Are Effective Ways To Raise Money For Your Registered Charity?
Whilst charity is not for profit, the money it requires to pursue its purposes must come from somewhere. There are various sources you can tap into, including regular donations, grants, fundraising events, and gift aid donations.
Some tips include:
- Put politics aside – Humanitarian efforts should have no political leaning. You may well have plenty to say about Eurozone bailouts and Whitehall’s search to differentiate between its elbow and posterior but leave it out of your charity entirely. Not only can it polarise donors, but it’s also against charitable purposes.
- Long-term over the short term – People are more likely to give little amounts to charity, and not often. That’s why it’s better to pick a plan that will spread the word wide, and stay consistent. Make sure you also update people on how much the public benefit of the charity has paid off. Foundations not only allow business people to give something back, but they also allow them to use their entrepreneurial eyes for long-term sustainability.
- Go digital – Give your charity a presence on social media platforms and track figures to update the world on ongoing fundraising efforts. This sense of progression has been proven to increase engagement.
What Are Some Alternatives To Setting Up A Charity?
If all this sounds like a bit too much effort, there are alternatives:
- Charitable foundation – a charitable foundation. There are virtually no overheads, and donations can be dispensed to charities already operational on the ground. A CAF is effectively a bank account into which you make a single donation each year, and you then get a chequebook which you can use to make donations to charities. As for administration fees:
- £5k to £25k – If you invest £25,000 per year or less, only a couple of forms need to be filed with the Charity Commission. It’s important to note that all registered charities must comply with these administrative requirements based on their income levels.
- £25k to £250k – All paperwork and submissions must first be looked over by a competent individual
- £250k to £500k – As above, but the competent individual has to be qualified ie: an accountant
- £500k+ – Accounts must be properly approved by an independent auditor.
- Community Interest Company (CIC) – A Community Interest Company is a company that is designed to benefit the community. It makes it easy for a tax return because it’s just a single payment each year, so a client doesn’t have to go through mounds of paperwork to fill in their tax return and it doesn’t involve any of the work in setting up and running your foundation. You can even set up a CAF in your name, or a foundation’s name, or choose to keep it anonymous. You might also explore partnering with an existing charity to reduce administrative burdens and leverage established resources.
