If you are operating a not for profit organisation, it could be beneficial to register the organisation as a charity.
A charity can operate as any of the business units described above.
- Charities exist to benefit the public, not specific individuals,
- There are, currently, over 160,000 registered charities in England and Wales.
Charities pay reduced business rates and receive tax breaks.
For example:
- Limited VAT relief,
- Gift Aid on donations and
- Exemption from tax on any charitable surpluses,
A note of caution
Tax relief is restricted in what they can do and how they work.
Legal and Regulatory Obligations
There is a greater level of scrutiny, compliance and transparency regarding charities and the main considerations are that:
- Charity trustees (effectively the board of directors) are normally unpaid volunteers.
- In limited circumstances they can be paid, on approval from the Charity Commission.
- Charities can’t usually benefit anyone connected with the charity, for example giving work to a trustee’s family member or company
- Charities are restricted to do things the law recognises as being charitable.
- They need to satisfy a public benefit test, which means that :
- The benefits it provides can be identified
- It benefits a section - or the whole - of the general public
Avoid mixing charitable and non-charitable work
Charities are there to provide a public benefit and need to be careful regarding the mix of charitable and non-charitable work they do.