Setting Up a Charity and Tax Registration

Introduction

If you're setting up a charity in England or Wales, you'll need to follow specific steps to establish your organisation legally and register with both the Charity Commission and HMRC. This article explains how to set up your charity structure, when you need to register, and how to obtain tax recognition so your charity can benefit from tax reliefs.

The six steps to setting up a charity

Setting up a charity involves six key steps:

1. Find trustees – You usually need at least three trustees to govern your charity.

2. Establish charitable purposes – Your charity must exist to help the public through recognised charitable purposes (explained below).

3. Choose a name – Select a main name (and optionally a working name) for your charity that complies with naming rules.

4. Choose a structure – Decide which legal structure best suits your charity's activities.

5. Create a governing document – Draft a rulebook that explains how your charity operates.

6. Register with the Charity Commission – If your charity's annual income exceeds £5,000, or if you're setting up a charitable incorporated organisation (CIO), you must register.

What counts as a charitable purpose

Your charity must have purposes that benefit the public. Recognised charitable purposes include:

• Relieving poverty
• Education
• Religion
• Health and saving lives
• Citizenship or community development
• The arts and amateur sport
• Human rights and promoting religious or racial harmony
• Environmental protection
• Animal welfare
• Supporting the efficiency of armed forces, police, fire or ambulance services

You cannot set up a charity to help one specific person – your aims must benefit the wider public.

Choosing a name for your charity

Your charity's official name is called its 'main name'. You can also use a 'working name' for day-to-day purposes (for example, Comic Relief is the working name for Charity Projects).

Your charity name must not:

• Be the same as or too similar to an existing charity's name
• Use words without permission (such as trademarks)
• Use offensive words or acronyms
• Be misleading about what your charity does

Check the charities register to avoid name conflicts. Note that unregistered charities won't appear in the register, so also search online for similar names.

Words requiring permission

You need evidence of permission to use:

• Names of famous or copyrighted works
• Names of famous people or characters
• Trademarks such as "Olympic" or "Paralympic"
• Royal titles such as "King", "Queen", "Prince", or "His or Her Majesty"

You can use the words "charity", "charities" or "charitable" in your name, but need approval from the Charity Commission if you use them when registering a company name with Companies House.

If your charity name includes non-English words, you must provide a translation when you register.

Choosing your charity structure

Your charity structure affects who runs the charity, how it operates, and what it can do (such as employing staff or owning property). There are four common structures:

Charitable company

A charitable company must be limited by guarantee (not by shares). When registering with Companies House, select "private company limited by guarantee". Trustees have limited or no liability for the company's debts.

Charitable incorporated organisation (CIO)

A CIO is an incorporated structure designed specifically for charities. You register directly with the Charity Commission and don't need to register with Companies House. Trustees have limited or no liability for debts.

Charitable trust

A charitable trust allows a group of trustees to manage assets such as money, investments, land or buildings.

Unincorporated charitable association

This is a simple structure for volunteer groups running a charity for a common purpose. However, unincorporated charitable associations cannot employ staff or own premises.

Creating your governing document

You must create a governing document (or rulebook) that explains:

• Your charity's purpose
• Who runs it and how
• How trustees are appointed
• Rules about trustees' expenses and payments
• How to close the charity

The type of governing document you need depends on your charity structure. The Charity Commission provides templates and guidance. You can use your own template, but this may slow down the registration process.

Trustees must meet to sign the governing document. If you're setting up a charitable trust, you'll need an independent witness.

Registering with the Charity Commission

You must register your charity if:

• Its annual income is at least £5,000 per year, OR
• It's a charitable incorporated organisation (CIO)

AND it's based in England or Wales.

What you'll need to provide

When you apply online, you'll need:

• Your charity's name
• Bank or building society details
• Most recent accounts
• Contact details, including a postal address
• Trustees' names, dates of birth and contact details
• A copy of your governing document (in PDF format)
• Information about your charitable purposes and how you run the charity for public benefit
• Proof that annual income is above £5,000 (unless you're a CIO)

Proof of income can be:

• Your charity's latest published annual accounts (approved by an independent examiner or auditor) in PDF format
• A recent bank statement (scanned image)
• A formal offer of funding from a recognised funding body (scanned image)

Registering with HMRC for tax purposes

To receive tax relief, your charity must be recognised by HMRC. This is a separate process from registering with the Charity Commission.

When you apply for HMRC recognition, you must appoint:

• Up to 2 authorised officials – These people manage your charity's tax affairs, such as claiming Gift Aid and filing tax returns. Only authorised officials can contact HMRC about your charity's tax.
• 2 to 4 responsible persons – These are legally accountable for running your charity (for example, trustees, directors or treasurers).

The fit and proper persons test

All people who manage your charity's finances (including authorised officials and responsible persons) must pass the "fit and proper persons test". This involves signing a declaration to prove they're suitable to run a charity's finances.

HMRC provides a draft declaration template you can use. You only need to send it to HMRC if they request it. Keep the declaration while the person works for your charity and for four years after they leave.

If someone cannot sign the declaration due to an event in their past but you still want them to manage finances, contact HMRC to discuss.

Appointing someone outside your charity

You can appoint a "nominee" from outside your charity to claim back tax on your behalf. However, you still need an authorised official within your charity to be responsible for tax matters.

If you want your nominee to deal with other tax affairs or have HMRC contact them directly, appoint them as an agent. Some nominees claim Gift Aid for multiple charities and are known as "collection agencies".

Updating HMRC when people change

If your authorised officials or responsible persons change, complete form ChV1 and send it to HMRC at the address on the form.

Sources

• Set up a charity
• Who can run your charity's finances

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.