Call us on +44 (0)20 7465 4300
27 April 2023

How to Set Up a Charity

As part of our fortnightly Private Wealth Planning series, Associate Victoria Robinson lays out what you need to know to start a charity and how to navigate the strict regulatory and legal requirements which comes with this.

According to the Charities Aid Foundation (CAF) World Giving Index 2022, the United Kingdom (UK) constituted one of the top 10 countries in the world for donating money to charity in 2021, ranking in a strong 5th place as a result of 65% of its population taking part in charitable giving throughout the year.

However, despite this, the UK did not rank within the world’s top 10 most generous countries, which not only takes into account donation rates but also time spent volunteering with charities and helping strangers in need.

This may seem surprising given that the UK has over 180,000 registered charities and a population known for its high charitable donation rates, but it just goes to show that there is always more we can be doing to increase our participation in the charity sector – perhaps even by adding to it through the creation of your own charity!

What is a charity?

Under English law, a charity is an organisation that is established for charitable purposes only (of which there are 13 to choose from), carries out those purposes for the public benefit, and is subject to English charity law.

This means that if there is a particular social or environmental issue you care about or a problem you believe needs solving which would help others and meet the criteria set out above, setting up a charity of your own may be the way forward and is something that we at Payne Hicks Beach would be delighted to assist you with.

What forms can a charity take?

Under English law, charities are generally structured as charitable trusts, charitable companies limited by guarantee (CCLGs), charitable incorporated organisations (CIOs), or unincorporated associations (with the first three being the most common), which means that there are a number of options available to you depending on how you envision your charity being run.

Regardless of which form your charity takes, all CIOs and any other form of charity with an annual income of more than £5,000 must register with the Charity Commission of England and Wales (the Charity Commission) and an overview of the three main options available are set out below.

Type of Charity Description Creation Formalities
Charitable trust Assets are held on trust and activities conducted for charitable purposes by individual trustees in the best interests of the charity

The charity is not a corporate body and so does not have separate legal personality to the trustees (who are personally liable for what the charity does)

Well-suited for grant-making charities whose primary purpose is to make money available to fund projects which fall within the philanthropic purposes they are passionate about

Requires the preparation of a trust deed setting out the charitable purposes in relation to specific assets which governs how the trust is run

This is then followed by an application to the Charity Commission assuming its annual income is over £5,000 and to HMRC to register the trust as a charity for tax relief purposes

Charitable company limited by guarantee Separate legal personality to its directors/trustees but regulated by both the Charity Commission and Companies House and therefore subject to both charity and company law

Corporate structure is desirable if the charity is to take a more hands-on approach where the trustees are involved in employing staff, dealing with land, engaging in trade, and undertaking activities involving members of the public because unlike a trust, the trustees/director will not be personally liable for the charity’s activities

Requires a memorandum and articles of association containing the charity’s objects, trustees’ powers, dissolution procedure, and rules governing membership, the appointment and retirement of trustees, and meetings to be drawn up

The CCLG then has to be incorporated at Companies House and registered at HMRC for tax relief purposes, in addition to registering as a charity at the Charity Commission assuming its annual income is over £5,000

Charitable incorporated organisation Corporate structure designed specifically for charities which gives both the charity and trustees the benefit of limited liability protection and separate legal personality

As a CIO is not subject to company law, this structure may be desirable if it is undertaking hands-on activities as set out above without the corporate procedures and formalities imposed by company law

However, it is a much newer structure than a CCLG and therefore less commonly seen in practice

Requires the preparation of a constitution, which must be tailored depending on whether the members consist of the trustees only or if there are further voting members

The CIO then has to be registered at the Charity Commission regardless of its annual income and with HMRC to ensure its recognition as a charity for tax relief purposes going forward



What are the advantages and disadvantages of setting up a charity?

The advantages of setting up a charity are the tax benefits available to both the charity and the founder (in addition to any donors of the charity) and the ability to achieve public good through its creation and ongoing existence.

However, there are strict regulatory and legal requirements which need to be followed by the charity and its trustees going forward and there is also a high-level of public scrutiny involved, given charities are held in such high esteem by the public who expect them to be run well and above all with integrity.

How can we help?

If any of the above information is of interest to you or you would like to find out more, please do not hesitate to contact the author, Associate Victoria Robinson, or any other member of the Payne Hicks Beach Private Client Team, who offer a full range of legal services in the charity sector and would be delighted to assist you with setting up a charity of your own in any of the forms listed above.

About the Author
Rosamond McDowell
View Profile