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Forming a charity

Operating as a charity can bring benefits to an organisation and may assist with fundraising. Charities enjoy corporation tax and council tax benefits and charitable status 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 1992 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 maintain 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 (see Inland Revenue leaflet IR 2004)

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 six ‘heads’ of charity: the relief of the elderly, vulnerable or hardship; the advancement of education; the advancement of religion; the promotion of urban or rural regeneration; the relief of unemployment; other charitable purposes for the benefit of the community. Most charities active in the arts or media operate under the educational ‘head’. 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 150,000 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:

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