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Forming a charity


Operating as a charity can bring benefits to an organisation and may assist with fundraising. Charities enjoy exemption from corporation tax on profits, relief from business rates (rate relief), Gift Aid relief on donations from individuals, stamp duty land tax relief on freehold property and leases, and can bring credibility in the eyes of funding bodies, other organisations and the general public. It can also be easier to raise funds from certain sources including grant-making trusts and local government. While the Charities Act 2011 restricts the freedom which charities have to trade beyond the strict remit of their charitable objectives, lost flexibility can be restored by the creation of a trading company operating outside the scope of charity law but covenanting back profits.

The legislation governing the establishment and activities of charities is, however, as stringent as that governing limited companies. The Charity Commission maintains a register, investigate misconduct and abuse, and otherwise administer the charities sector in England and Wales. The law is different in Scotland where, in order to obtain tax and funding benefits your organisation should be registered with the Inland Revenue as a ’Scottish Charity’. The Scottish Council for Voluntary Organisations (SCVO) can supply a Guide to Constitutions and Charitable Status that includes model documents that groups can adapt for their own use.

There are separate rules governing the published annual accounts produced by charities known as SORP (Statement of Recommended Practice) and it can be costly to employ a specialist accountant to draw these up. Under law, charities exist to fulfil a specified purpose and are, by definition, voluntary organisations: that is, the board of management must not be remunerated (although staff can be paid). The definition of charitable purpose breaks down into four ‘heads’ of charity: relieving poverty, sickness or the needs of the aged; advancing education; advancing religion; other purposes beneficial to the community (e.g. advancing the arts and culture).

Most charities active in the arts or media operate under the educational or other purposes beneficial to the community ‘heads’.  It is also illegal for the trustees of a charity to benefit from it financially - for example, a trustee cannot also be an employee of the charity. It is possible to be prosecuted for running a charity improperly.

The Charity Commission publish a free booklet (CC21), Registering as a Charity, which gives advice and explains the law. There are more than 160,000 registered charities already operating and it may be possible - or even desirable – to join forces with an existing organisation. The Register of Charities or Charities Digest both give information on existing charities. The Office of the Scottish Charity Regulator (OSCR) provides a similar service for Scotland.

For full details about setting up a charity and the responsibilities of running one, refer to the website of the Charity Commission: www.charity-commission.gov.uk/Start_up_a_charity/default.aspx

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