Charitable Status

This page has been made 'redundant' since the decision in 2014 to adopt an Industrial and Provident Society (IPS) legal status, which allows HMRC charitable status only. The page is therefore now recategorised as an historic document.

........

This page seeks to set out some of the background about charitable status and some of the pros and cons for Freegle in considering whether this would be appropriate for our organisation.

Q. What is Charitable Status?

A. Charitable Status refers to an organisation that is registered with the appropriate authority as charitable.

Q. Where does an Organisation have to register if it wants to be a Charity?

A. Organisations based in England and Wales need to register with the Charity Commission. [1] Organisations based in Scotland need to register with the Office of the Scottish Charity Regulator (OSCR). [2] Charities based in Northern Ireland do not, and cannot, register. The only formality needed for NI organisations is to apply to HMRC for charitable status for tax purposes.

Q. What is the HMRC and how does that affect charitable status?

A. Her Majesty's Revenue and Customs (HMRC) can register organisations as charitable. This is independent of whether the organisation has registered as a Charity. It is possible to be registered with the HMRC but not with Charity Commission or OSCR. Freegle has registered as a charity with the HMRC. Registration with the HMRC means that Freegle can call itself a 'charity registered with the HMRC' in the UK [3]

Q. What benefits are there to being registered with HMRC?

A. There are some tax benefits for Freegle to being registered, mainly the ability to claim tax relief on income and gains, and on profits from some activities, as well as claiming tax back on income received on which tax has already been paid, for example on bank interest and Gift Aid donations. Businesses and individuals wishing to see what tax benefits they could get by donating to a charity registered with the HMRC can check the latest rules at http://www.hmrc.gov.uk/businesses/giving/index.htm and http://www.hmrc.gov.uk/individuals/giving/index.htm .

Q. Can an Organisation be charitable without being registered anywhere?

A. Yes, if the constitution an organisation adopts clearly shows that it is operating charitably it can claim to be charitable., However, the endorsement given by registration with the appropriate authority and/or the HMRC obviously lends weight to that claim. An organisation cannot refer to itself as a Charity, however, unless it is registered with the Charity Commission or OSCR.

Q. What does an organisation need to do to register with the HMRC?

A. The application is simple, but the governing document that needs to be submitted must demonstrate that it is governed in such a way as to be considered charitable and that the people in charge of governing the organisation are 'fit and proper'.

Q. What does an organisation need to do to register with the Charity Commission or OSCR?

A. An organisation needs to be set up with a governing document (eg. constitution, articles of association) that comply with the guidelines set out by the appropriate authority. In England and Wales the organisation needs to have an income of more than £5k; the OSCR doesn't have this requirement. Wikipedia has a good, more extensive explanation of this here [4].

Q. Will Freegle have to apply to be a charity if it becomes bigger or more formal?

A. Charitable organisations that have a regular annual income of more than £5,000, and for whom the law of England and Wales applies, must register with the Charity Commission for England and Wales. For companies, the law of England and Wales will normally apply if the company itself is registered in England and Wales. In other cases if the governing document does not make it clear, the law which applies will be the country with which the organisation is most connected.

Where an organisation's income does not exceed £5,000 it is not able to register as a charity with the Charity Commission for England and Wales. It can, however, register as a charity with HM Revenue and Customs for Tax purposes only. With the rise in mandatory registration level, to £5,000 by The Charities Act 2006, smaller charities can be reliant upon HMRC recognition to evidence their charitable purpose and confirm their not-for-profit principles.

Some charities which are called exempt charities are not required to register with the Charity Commission and are not subject to any of the Charity Commission's supervisory powers. These charities include most universities and national museums and some other educational institutions. Other charities are excepted from the need to register, but are still subject to the supervision of the Charity Commission. The regulations on excepted charities have however been changed by the Charities Act 2006. Many excepted charities are religious charities.

Q. What benefits might there be for Freegle of being registered as charitable or a Charity?

A. There are tax benefits, external recognition of the organisation as, maybe, a more credible entity, and access to funding sources only available to charities.

Q. What disincentives are there for registering Freegle?

A. There would be paperwork, monitoring and some annual expenses which will mean commitment by volunteers to do the work and raise that funding. There are requirements on what needs to be included in the governing document which might not suit the way Freegle operates at present (eg. maintaining a list of all voting members, holding an AGM).

Q. What formal structure would Freegle have to adopt to become a registered Charity?

A. There are several legal structures we could adopt. They are:

• Unincorporated Association (gross income under £5kpa, has a membership, Trustees elected by members, no ownerhip of buildings, no employees, no limitation to liability)
• Trust (no membership or small group of Trustees who are self appointed or grant making body only etc)
• Company limited by guarantee (articles of association, Trustees are called a Board or Management Committee etc, probably quite large, might have employees, has to be registered with Companies House)
• Charitable Incorporated Organisation - CIO - simpler legal structure than Trust or Company, two different models. See this link [[5]] for full details and [[6]] for a link to Model Constitutions.
• Freegle can use the website Get Legal [7] to help with identifying the structure it would need to become a charity.
• A summary of possible structures can be found here - Types of Organisation