Charities within England and Wales
Charities in England and Wales must be exclusively charitable in order to qualify as charities. In order to satisfy this exclusivity test, there are two considerations. The first is whether or not you plan to or are conducting activities which are capable of supporting a good charitable purpose and, if you are, whether that activity is for the public benefit. The public benefit test is, broadly speaking, in two parts, that is the activity for a sufficient section of the public and, if so, does it confer any inappropriate private benefits upon non-charitable beneficiaries?
The public benefit test is a complex test and this is a very brief summary of the issues concerned.
Under English law there are 13 potential descriptions of charitable purposes in the charities legislation and these are as follows:
(1) A purpose falls within this subsection if it falls within any of the following descriptions of purposes –
(a) the prevention or relief of poverty;
(b) the advancement of education;
(c) the advancement of religion;
(d) the advancement of health or the saving of lives;
(e) the advancement of citizenship or community development;
(f) the advancement of the arts, culture, heritage or science;
(g) the advancement of amateur sport;
(h) the advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity;
(i) the advancement of environmental protection or improvement;
(j) the relief of those in need because of youth, age, ill-health, disability, financial hardship or other disadvantage;
(k) the advancement of animal welfare;
(l) the promotion of the efficiency of the armed forces of the Crown or of the efficiency of the police, fire and rescue services or ambulance services;
(m) any other purposes –
(i) that are not within paragraphs (a) to (l) but are recognised as charitable purposes by virtue of section 5 (recreational and similar trusts, etc.) or under the old law,
(ii) that may reasonably be regarded as analogous to, or within the spirit of, any purposes falling within any of paragraphs (a) to (l) or sub-paragraph (i), or
(iii) that may reasonably be regarded as analogous to, or within the spirit of, any purposes which have been recognised, under the law relating to charities in England and Wales, as falling within sub-paragraph (ii) or this sub-paragraph.
(2) In subsection (1) above –
(a) in paragraph (c), “religion” includes –
(i) a religion which involves belief in more than one god, and
(ii) a religion which does not involve belief in a god,
(b) in paragraph (d), “the advancement of health” includes the prevention or relief of sickness, disease or human suffering,
(c) paragraph (e) includes –
(i) rural or urban regeneration, and
(ii) the promotion of civic responsibility, volunteering, the voluntary sector or the effectiveness or efficiency of charities,
(d) in paragraph (g), “sport” means sports or games which promote health by involving physical or mental skill or exertion,
(e) paragraph (j) includes relief given by the provision of accommodation or care to the persons mentioned in that paragraph, and
(f) in paragraph (l), “fire and rescue services” means services provided by fire and rescue authorities under Part 2 of the Fire and Rescue Services Act 2004.
Many individuals, either philanthropists or those who have done particularly well in life either in business or in sport or in some other way, feel it is appropriate to “give something back” and maybe help those with whom a particular empathy has been identified.
Such individuals take great pleasure, generally speaking, in being able to provide assistance in this way and those who are prepared to establish a charity and run the charity according to law and in a proper way, can normally obtain income tax benefits on taxed income in the UK. Charities are also generally exempt from corporation tax, capital gains tax, council tax (sometimes 100%, but possibly this will be 80% depending on where you are located) and, of course, they may also be able to use their registered charitable status to attract funds from other sources. Anybody giving to a charity in this way can, generally speaking, also receive a tax advantage, claimable against their own income tax position, depending upon the rate of tax they are liable for.
How to run a charity?
Generally speaking, for good governance reasons, a minimum number of three people are required in the running of a charity. There is a separate blog on the legal forms that charities can take. If you are resident abroad, then it is more sensible to have a charity established as a company limited by guarantee, so as to ensure that there are assets within the jurisdiction of the High Court and, therefore, the Charity Commission will accept such an institution for registration.
If a charity is established and has an income in excess of £5,000, it must be registered.
Generally, there must be members of a charitable company, but they can also be in a second capacity, its directors so that they are one and the same person with two capacities.
The trustee board (who will be company directors) have the opportunity to ensure that they are protected by the corporate veil that the company provides, so that provided the company is run properly, there will be no personal liability to be concerned about in most circumstances. My blog on charity structures give more information on the alternatives open to you.
The members of a company usually provide a limited guarantee, often as little as £1 and, in the event that the company becomes insolvent and is wound up, their liability will extend to that £1 payment and no more.
The trustees of any charity must hold meetings at a proper interval which is sufficient to manage the affairs of the charity, but could be as little as one or two meetings per year. Sometimes the trustees will have an executive team that will deliver all the trustees’ decisions upon their behalf, but in smaller charities, the trustees may be more “hands on” and deliver much of the work themselves.
There are specific training course on how to be a good trustee. This blog is meant to be a high-level overview and not legal advice. If you are in any doubt then please seek advice as appropriate. No responsibility can be accepted.
The creation and then management of a charity can carry personal responsibility and there is no substitute for taking proper financial and legal advice before entering into any arrangements.
These are the views of Stephen Claus, and therefore does not constitute individual legal or financial advice, this article is for information only. If you require guidance or advice, please get in touch.