Advantages and Disadvantages of Establishing a Charity
Many fundraisers and charitable organisations presume that they need to register as a charity in order to carry out their work. But, while registering may well be the right choice for some, it is not always a necessity.
Registering as a charity has some major advantages, but it also has some quite significant potential drawbacks. It is important that you understand all the implications before making a decision.
The AdvantagesThere is a range of important advantages associated with setting up a charity. Perhaps the primary advantage is an increased level of trust in your organisation. Understandably, many people will be more inclined to give their money or time to a registered charity than to an unregulated organisation. This has important implications for your fundraising activities.
Similarly, many suppliers and other organisations will give preferential treatment to registered charities. You may find, for example, that suppliers give you a discounted rate or, in some cases, will waive their fee altogether.
Registered charities also enjoy a range of tax benefits that are not available to unregistered organisations. These benefits can significantly impact on your organisation’s finances. Most importantly, the income and gains that your charity generates will generally be exempt from Income Tax, Corporation Tax and Capital Gains Tax provided that the money is used for exclusively charitable purposes. In addition, registered charities can make use of the Gift Aid system which enables you to increase the value of donations made by UK taxpayers.
The DisadvantagesFor all the benefits, though, registering as a charity does have some potential downsides. To begin with, once you register you are legally obliged to operate solely within the parameters established in your governing document. This can mean that you find your activities limited in a way that they would not otherwise be.
These limitations also extend to the groups that can benefit from your activities. The charity’s activities cannot benefit anyone with whom you have a relationship. This includes, for example, family members and friends.
As a registered charity your organisation will also be prohibited from carrying out any political activities. The organisation will not be able to have any political purpose, and it will not be allowed to support a political party.
It is also important to remember that registering as a charity can dramatically increase the amount of paperwork you have to complete. You will have a range of new reporting obligations, and the regulatory burden is significantly higher. This can be mitigated, though, through a sensible choice of structure. More information on choosing a structure for your charity is available elsewhere on this site.
What do I do now?Registering as a charity is a big step, and one that should not be taken lightly. If, having looked at the advantages and disadvantages of registration, you determine that a registered charity is the right form for your organisation to take, you may want to read the articles on the three charity types elsewhere on this site.
You should remember, though, that registering as a charity is not the only way to carry on as a fundraiser. You may also wish to read our article on the alternatives to registration, which sets out some of the other ways that you can carry on charitable activities without registering.