Tag: charity

The Disadvantages of Being A Charity

There are many advantages to being a charity including

tax breaks;
a good level of public trust;
a defined purpose, acting for the public benefit.

BUT charities also have restrictions. For example:

If you set up a charity you must apply to register it with the commission if it is a charitable incorporated organisation (CIO) or its annual income is more than £5,000, unless it is a specific type of charity that doesn’t have to register.
Charities must follow charity law, which includes telling the Charity Commission and the public about their work.
Charities can only have purposes the law recognises as being charitable – they can’t have a mix of charitable and non-charitable purposes.
Charities must be independent – a charity can work with other organisations but must make independent decisions about how it carries out its charitable purposes.
Charities must be run by trustees who are normally unpaid volunteers – they can only be paid where it is authorised.
Charities can’t usually benefit anyone connected with the charity, for example giving work to a trustee’s family member or company, unless it is authorised.
Charities can’t take part in certain political activities, such as campaigning for a change in government.
Strict rules apply to trading by charities.
Registered charities must provide public, up-to-date information about their activities and finances.
Charities are outward facing – they can’t be set up to benefit the narrow interests of a closed group.

Taking or defending legal action – the general position for charities

Trustees have a general duty to act in the best interests of their charity. They have a duty to protect, and where necessary, to recover, assets belonging to the charity. The decision whether or not to initiate or defend a legal action must only be made in the best interests of the charity and be balanced against the risks and consequences that any legal action could bring.

The commission expects trustees to consider legal action only after they have explored and, where appropriate, ruled out any other ways of resolving the issue in dispute.

Trustees need to bear in mind that taking or defending legal action must be in their charity’s best interests. They must be able to demonstrate that their decisions were made accordingly. However, in some cases the commission’s consent is necessary

The legal structure of the charity means there are differences in how legal action may be taken or defended:

Incorporated charitiesIncorporated charities such as charitable companies, corporations or CIOs take or defend legal action in the name of the charity as a legal entity in its own right. If an action is brought by or against an incorporated charity, the incorporated charity will be named as a party to the action in its corporate name. In most situations, if the charity is incorporated, it is the charity itself, rather than the members or the trustees, which is responsible for the charity’s debts or for any other liabilities which might arise.However, if there has been any breach of duty or the decision to bring or defend the legal action has not been taken reasonably, the trustees may be personally liable for any costs arising from the proceedings.
Unincorporated charitiesUnincorporated charities such as associations and trusts usually take or defend legal action in the names of their charity trustees. If such a charity has insufficient funds to meet any claim, its trustees may be personally liable irrespective of whether there has been any fault or breach of duty on their part.

Some types of legal action, whatever the legal structure of the charity, need the consent of the commission. These are a specific category of legal action, concerning the constitution or administration of a charity and are called charity proceedings.

You can find further information on charity proceedings and how to apply for the commission’s consent here

Charity types: how to choose a structure

Types of charity structure

There are four main types of charity structure:

charitable incorporated organisation (CIO)
charitable company (limited by guarantee)
unincorporated association
trust

Your charity structure is defined by its ‘governing document’ (the legal document that creates the charity and says how it should be run).

The type of structure you choose affects how your charity will operate, such as:

who will run it and whether it will have a wider membership
whether it can enter into contracts or employ staff in its own name
whether the trustees will be personally liable for what the charity does

About corporate structures

Some charity structures are corporate bodies. If you choose a structure that forms a corporate body, the law considers your charity to be a person in the same way as an individual.

About charities with a wider membership

Some charity structures have a wider membership. If you set up a charity with a wider membership, it can have members who vote on important decisions (usually at AGMs).

Charities without a corporate structure: which type to choose

With wider membership

Set up an unincorporated association if you want your charity to have a wider membership but it doesn’t need a corporate structure (for example, if it will be relatively small in terms of assets). Choose a constitution as your governing document.

Without wider membership

Set up a trust if your charity doesn’t need a corporate structure or a wider membership.

Choose a trust deed as your governing document. It must specify a sum of money, land or some other assets that your charity will start with (it doesn’t matter how much). Otherwise you won’t be able to register it with the commission.

More detailed information about charity structures can be found here

VAT Relief For Charities

Charities pay VAT on all standard-rated goods and services they buy from VAT-registered businesses. As a charity you do not pay VAT when you buy some goods and services

What qualifies for the reduced rate

Your charity pays 5% VAT on fuel and power if they’re for:

residential accommodation (for example, a children’s home or care home for the elderly)
charitable non-business activities (for example, free daycare for disabled people)
small-scale use (up to 1,000 kilowatt hours of electricity a month or a delivery of 2,300 litres of gas oil)

If less than 60% of the fuel and power is for something that qualifies, you’ll pay the reduced rate of VAT on the qualifying part and the standard rate (currently 20%) on the rest.

Qualifying fuel and power includes gases, electricity, oils and solid fuels (such as coal). It does not include vehicle fuel.

What qualifies for the zero rate

Find out about the conditions you must meet so that your charity pays no VAT (the zero rate) when you buy:

VAT-free goods from outside the UK

Charities do not pay VAT on goods imported from outside the UK as long as they’re benefiting people in need by providing:

basic necessities
equipment and office materials to help run your organisation for the benefit of people in need
goods to be used or sold at charity events

You can check which goods you can claim VAT relief for as well as how to claim.

Trustees Week 2015

Trustees’ Week 2015 is 2–8 November

Trustees are the people in charge of a charity. They play a vital role, volunteering their time and working together to make important decisions about the charity’s work. Trustees’ Week is an annual event to showcase the great work that trustees do and highlight opportunities for people from all walks of life to get involved and make a difference.

For more information, click here

Conflict of Interest

ABOUT CONFLICTS OF INTEREST

You have a legal duty to act in your charity’s best interests when making decisions as a trustee. If there’s a decision to be made where a trustee has a personal or other interest, this is a conflict of interest and you won’t be able to comply with your duty unless you follow certain steps.

For example, if you’re a trustee, you would have a conflict of interest if the charity is thinking of making a decision that would mean:

you could benefit financially or otherwise from your charity, either directly or indirectly through someone you’re connected to
your duty to your charity competes with a duty or loyalty you have to another organisation or person

Conflicts of interest are common in charities – having a conflict of interest doesn’t mean you’ve done something wrong. But you need to act to prevent them from interfering with your ability to make a decision only in the best interests of the charity.

Follow a 3 step approach (identify, prevent, record) so that you are able to comply with your duty and avoid:

making decisions that could be overturned
risking your charity’s reputation
having to repay your charity if you make unauthorised payments to trustees

Legal requirement: you MUST declare a conflict of interest immediately you are aware of any possibility that your personal or wider interests could influence your decision-making.

More details can be found here