Resources / The benefits of being a charity, and what you give up
The benefits of being a charity, and what you give up
Charitable status is a bargain. You get tax reliefs, access to funding and a level of public trust no other structure carries. In return you accept limits on what you can do with the money and who can benefit from it. Both halves are worth understanding before you sign up, and worth remembering afterwards.
What you get
Tax
- Gift Aid. For every £1 a UK taxpayer donates, you can claim another 25p from HM Revenue and Customs. On a £10,000 year of eligible giving that is £2,500 you would otherwise not have.
- No corporation tax on most income. Donations, grants, investment income and profits from trading that is part of your purpose are exempt, as long as the money is used for your purposes.
- Business rates relief. Up to 80% off the bill on property used mainly for charitable purposes. Your council can top up the rest at its discretion.
- Some VAT reliefs. Zero rating on things like advertising, and on certain equipment. Charities are not VAT exempt in general, so check before you assume.
- Legacies. Gifts to charity in a will are free of inheritance tax, and leaving 10% or more to charity cuts the rate on the rest of the estate.
Funding
Most grant funders will only fund registered charities. So will many corporate giving schemes and community foundations. A registered charity number is the first field on nearly every application form. Without it a whole category of income is closed to you.
Trust
Your entry on the public register shows anyone your purposes, your trustees and your accounts. That transparency is why people give to strangers. It is an asset, and like any asset the trustees have to look after it.
What you give up
The money stops being yours
Charity funds can only be spent on the charity's purposes. Not on a good cause next door, not on something the founder cares about, not on a project the trustees prefer. If you cannot show that spending furthered your objects, it was misapplied, and trustees can be asked to put it back personally.
Trustees are unpaid, by default
Trustees serve voluntarily. You can repay real out-of-pocket expenses, and there are narrow routes to paying a trustee for goods or services, but they need authority in your governing document, in law, or from the Commission (CC11). Paying a trustee without that authority is one of the most common findings in Commission inquiries.
You cannot change what you are for
Objects are not a mission statement you refresh every few years. Changing them usually needs Commission consent, and the Commission will look at whether the change respects what donors gave for. If the work you want to do next is a long way from your objects, that is a serious constraint, not a formality.
Trading is limited
You can trade freely where the trading is itself how you carry out your purposes. Trading purely to raise money is restricted, and past a threshold the profits become taxable. Many charities set up a separate trading company for this.
You are publicly accountable
Annual accounts, an annual return and a trustees' annual report, all published. Serious incidents reported as they happen, not at year end. Late filing is a criminal offence, and the register shows the world you were late.
So is it worth it?
For most people running something for public good, yes. The tax reliefs alone usually outweigh the administration, and the funding access often decides it.
It is the wrong answer if you want to pay the founders a salary as of right, keep personal control, or follow the work wherever it goes. Those are reasonable things to want. They are just not compatible with holding money on trust for a purpose.
The trade-off only works if you keep your side of it. A charity that cannot show what it spent, or has not met for a year, gets the duties without keeping the trust.