To be a charity your organisation must have charitable purposes only. It cannot have some purposes that are charitable and some that are not (legal requirement)
The Charities Act 2011 defines a charitable purpose, explicitly, as one that falls within 13 descriptions of purposes and is for the public benefit.
There is no automatic presumption that an organisation with a stated aim that falls within one of the descriptions of purposes is charitable. This has to be demonstrated in each case.
Purposes that cannot be charitable purposes
Your organisation’s purpose cannot be a charitable purpose if it does not fall within the descriptions of purposes and is not for the public benefit, including if it is:
- a political purpose
- unlawful or against public policy
- intended to serve a non-charitable purpose
The 13 descriptions and more detailed information can be found here
A person is disqualified from acting as a charity trustee or holding a senior management position within a charity, if certain legal disqualification reasons apply to them.
From 1 August 2018 changes to the automatic disqualification rules mean there will be more restrictions on who can run a charity.
You will need to check that your trustees, Chief Executive Officer and Financial Directors will not be disqualified from acting in these positions after the 1 August 2018.
Your charity should have systems in place so that it can make sure people who are already in a trustee or senior manager position have not become disqualified in the period since they were appointed.
This can be done by asking them to sign a fresh declaration (at reasonable intervals) to confirm that they are not disqualified so that the signed declarations you periodically ask for:
- are received from both trustees and any relevant senior managers
- request confirmation that they are not disqualified under the automatic disqualification rules
More detailed information can be found by clicking here
It is a legal requirement that trustees of registered charities must report each year in their trustees’ annual report on how they have carried out their charity’s purposes for the public benefit. Trustees of smaller registered charities (where gross income does not exceed £500,000) must report on public benefit by:
• including a brief summary setting out the main activities undertaken by the charity to carry out its charitable purposes for the public benefit
• including a statement as to whether they have complied with their duty to have due regard to the commission’s public benefit guidance when exercising any powers or duties to which the guidance is relevant
Public benefit reporting, when done well, can be an effective tool for trustees as it helps a charity to
• stay focused on what their charity is there to achieve (its purposes) when planning activities
• demonstrate what their charity does and the value of its work, particularly when applying for grant funding or fundraising
• link with impact reporting and demonstrating the charity’s transparency and accountability
• improve the overall quality of reporting on the charity’s work
More details can be found here
By law, you have a duty of care to protect your charity’s assets and resources. Depending on what your charity does, you can buy insurance to protect its money, property and reputation.
Examples of types of insurance that might be needed to cover a charity’s property against loss or damage are:
- buildings insurance
- contents insurance
- event insurance
Examples of types of insurance that might be needed to cover against a charity’s third party liabilities are:
- professional indemnity insurance
- public liability insurance
Charities that employ staff are required by law to buy employers’ liability insurance. Charities that own or operate motor vehicles are required by law to buy motor insurance.
For insurance purposes, charities are advised to treat volunteers in the same way as they do their employees and to ensure that they are covered by the usual types of insurance a charity might buy, such as employers’ liability or public liability cover.
More details can be found here, and here
Receipts and Payments Accounts is the simpler of the 2 methods of accounts preparation and may only be used where a non-company charity has a gross income of £250,000 or less during the financial year. Receipts and payments accounts contain a statement summarising all money received and paid out by the charity in the financial year, and a statement giving details of its assets and liabilities at the end of the year. Charitable companies are not allowed by company law to adopt this method.
Templates are available to help eligible non-company charities prepare their trustees’ annual report and receipts and payments accounts. When fully completed these meet the requirements of the law and can be used for submission to the Charity Commission. The pro forma receipts and payments accounts can be used in one of two ways:
(i) where trustees do not wish to design their own annual accounts they may enter the relevant details and amounts from the cash book (and other) records of the charity on to the forms
(ii) trustees who want to produce their own form of receipts and payment accounts can use the forms as a checklist.
Very useful Receipts and Payment Accounts Introductory Notes can be found here
Templates for preparing Receipts and Payments Accounts can be found here
A Reserves Policy explains to existing and potential funders, donors, beneficiaries and other stakeholders why a charity is holding a particular amount of reserves.
A good reserves policy gives confidence to stakeholders that the charity’s finances are being properly managed and will also provide an indicator of future funding needs and its overall resilience.
The Charities SORP requires a statement of a charity’s reserves policy within its annual report. In addition, if a charity operates without a reserves policy, the regulations require this fact to be stated in the annual report.
You can find out much more here
Do small charity annual reports and accounts meet the reader’s needs?
We are reviewing small charities’ annual reports and accounts because they are the prime means by which the trustees are publicly accountable to donors, beneficiaries and the wider public for the charity’s activities and how they have used the charity’s money. Good reporting is important to public trust and confidence in both the reporting charity and the wider charity sector.
We were led us to focus on the following criteria:
- have the trustees provided us with both an annual report and accounts?
- does the annual report explain what activities the charity had carried out during the year to achieve its purposes?
- do the accounts contain both an analysis of receipts and payments and a statement of assets and liabilities and are these consistent with each other?
You can find out more details here
The Charity Commission has updated its 15 questions checklist which is a great tool to check you’ve got the basics covered, identify priorities for the coming year, and review your charity’s overall financial effectiveness.