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Pros and cons of becoming a charity

Benefits and disadvantages of becoming a charity

Benefits

Charitable status has the following advantages.

Public recognition and trust

Charities are widely recognised as existing for social good. This can assist with fundraising.

A lock on assets

Organisations with charitable status cannot use assets for any purpose other than the pursuit of charitable objectives. The assets of a charity can never be used for private benefit.

Tax relief

Charities benefit from a variety of tax reliefs including:

  • exemption from corporation tax on profits from trading undertaken in the course of charitable provision (primary purpose trading)
  • 80 per cent mandatory, and 20 per cent discretionary, relief from business rates (rate relief)
  • Gift Aid relief on donations from individuals
  • Stamp duty land tax relief on freehold property and leases acquired for charitable purposes.
  • As a charity you will not pay VAT on some goods and services. Find out what's exempt at Gov.UK's VAT for charities

Funding

Certain sources of grant funding are open only to organisations with charitable status.

Disadvantages

Restrictions and requirements

Charities may face restrictions on work that can be carried out or funded. Certain political activities and types of trading are subject to restrictions. Organisations with charitable status must comply with regulatory requirements, including those relating to the preparation of annual accounts and returns. The Charity Commission's information on registration provides further information on restrictions and requirements.

Unpaid board

Individuals on the board of a charity, often referred to as trustees, must not be paid unless the constitution of a charity, and the Charity Commission, authorise it. Although payment of trustees for the supply of professional services is not prohibited, the Charity Commission will require a detailed explanation before it will allow payment of trustees. In Charity Commision agreement, authority to pay trustees must be included in a charity’s constitution or governing document.

This may mean charitable status does not appeal to founders of organisations who want to receive a salary and retain control. A founder who is a charity chief executive will receive a salary as an employee of the charity and can be dismissed by its board. A founder who sits on a board of a charity is usually unpaid and shares control and responsibility equally with all trustees.

For more information about payment of trustees see the Charity Commission's publication CC11 Trustee Expenses and Payments.

No equity investment

Charities cannot raise equity investment. It should be remembered that, for many organisations these disadvantages are seen as advantages.

Page last edited Jul 28, 2016

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