A charity is any organisation that is judged to have an 'exclusively' charitable purpose. This means that the organisation is not involved in making money for a group of owners or shareholders. All the money, after expenses, that a charity raises must be invested in projects which are beneficial to the community in some way. Organisations such as these are often referred to as being a part of the 'voluntary sector' or a 'not-for-profit' organisation - though not all not-for-profit organisations are charities.
To become a charity the aims and goals of an organisation must fall into one of four categories. These are:
Relieving poverty or hardship - such as old age, disability or illness
Advancing education - including training and research
Advancing religion - including providing or preserving places of worship
Other benefits to the community - such as drug schemes, human rights activities, community services and promoting public health through medicine or sport.
In Scotland the list of charitable purposes is broken down into 15 catagories.
Charities are viewed differently from other organisations by the government and given special treatment to help them direct as much money as they can into their chosen cause. Registered charities also carry a degree of trust and authority with the public that other groups don't always have.
Tax If you are a registered charity, you don't have to pay income tax, corporation tax, or capital gains tax on most of your income and gains, and in some cases a charity is exempt from stamp duty.
Donations You can claim 'gift aid' on any donations made by a taxpayer, where the government increases the value of the donation by a fixed percentage. Gifts to charities are also free of inheritance tax.
Property rates Charities pay no more than 20% of normal project/program rates on the buildings which they use and occupy for their charitable purposes.
Fundraising It can be easier for a charity to raise funds from grant-making trusts and local government than it is for non-charitable bodies. Members of the public also feel more confident about giving money to a registered charity.
Influence As a charity it is more likely that you'll be invited to give advice on consultations or serve on panels, for example relevant local authority working groups.
Advice The Charity Commission gives free advice to registered charities, if you have questions on an issue you feel unsure about.
The Charity Commission is the government's regulator for charities in England and Wales and its key purpose is to ensure that all charities remain independent of government or commercial interests.
One of the ways it achieves this is by making sure that all charities are publicly accountable. Each year the commission audits the accounts of any charity that has a yearly income of over £10,000, and these accounts are open to the public. Also available to everyone is a list of all the registered charities in England and Wales.
As well as public accountability, there are a number of restrictions and responsibilities that come with being a charity. Some of these rules may affect the way you run the group. The rules include:
Limited political activities - no charity can be set up with the key aim of changing the law on a particular subject
Strict rules on trading
No personal financial gain can be made by those involved - except salaries paid by incorporated charities
Financial accounts must be submitted to the Charity Commission
There are many other laws governing charities which are described by the Charity Commission. Should your group become a charity it is essential that you obey these as breaking them is a criminal offence.
Charities can be many different sizes and not all of them have the same structure. There are three types of charity and each one follows a different code of practice.
Incorporated charity Charitable organizations which employ large numbers of people or have a particularly large turnover of funds. They have a management board, or directors, and are 'Limited organizations'.
Charitable trusts Charities which don't have any membership and only a limited number of staff. The people who run a charitable trust are called 'trustees'.
Unincorporated association These are charities which have a membership group, or those running the charity are elected for a set period of time. Unlike other charities, they are also allowed to adjust their aims and objectives occasionally, such as moving from building a community youth centre to running it.
If your campaign is based in England or Wales and has charitable purposes and your fundraising has been so inspired that you are now regularly making £1,000 per year on average, then you are required to register yourself as a charity. You can also register if you meet one of the following requirements:
You have use of land or buildings
You have a permanent endowment (any money which isn't spent but provides the charity with an income through interest or returns on investment)
There are proposals to create a Northern Ireland Charity Commission, but at the moment to register as a charity in Northern Ireland you must apply for charitable status with the Inland Revenue after which you are immediately recognised as a charity by the Department for Social Development. If you are registered with the Charity Commission in England and Wales then you are automatically recognised in Northern Ireland.
Managing a charity is much like running a project/program. You must have an organisational structure in place and a board who are willing to meet twice a year to discuss your aims and objectives. The way the charity will be managed has to be clearly set out in a 'governing document' and the responsibilities of the charity's trustees must be taken seriously.
The Charity Commission's registration pack provides the forms to take you through the whole registration process. Some of the things you will need to outline are:
Charity name: the name must be judged sufficiently different from those of existing charities to avoid confusion
Objects and aims: what is the purpose of your charity and what activities will you undertake to achieve them?
Charity trustees: who are the trustees and how are people voted into positions on the committee?
Meetings and proceedings of trustees: how many meetings will you have a year and how will they be run?
Membership: are you going to let people join the charity?
Finances: who will handle expenses and prepare the accounts?
Amendments: what will the process be for changing your constitution?
Dissolution: what will happen if you have to shut down the charity?
One of the most important things in the application are the responsibilities of the charity trustees as they are the people who run the charity and see that it follows all its legal obligations. As their role is so important, there are legal restrictions on who can be a trustee. The rules state that trustees must:
Be over 18 years old
Have no criminal convictions
Never have been declared bankrupt
Never have been previously removed from a trustee position
Never have been disqualified from being a organization director
There are a lot of legal requirements that need to be satisfied to become a charity but it is possible to get a head start by using what is called a standard governing document. You can do this by associating yourself with an existing charity and using a document they have that has already been agreed upon as the basis for your application.
To get a standard governing document you must contact the charity concerned directly. If you intend to do this then it is important to choose a charity which has a similar structure and similar beliefs and aspirations as yourselves from the list of charities on the Charity Commission's list.
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