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Set out below in brief are the advantages and disadvantages
of achieving charitable status, which for most practical purposes
means achieving registration with the Charity Commission ("CC")
as a charity.
ADVANTAGES
Tax
There is a double advantage in that registered charities
enjoy certain tax exemptions, and there are tax reliefs for
taxpayers who make donations to charity.
Relief from Income Tax:
1. tax exemption for income derived by a charity from its
investments (eg property, shares, securities) where the income
is applied for charitable purposes;
2. tax exemption for profits derived from certain types of
trading activity namely where either;
(i) the trade is exercised in carrying out a primary purpose
of the charity, or
(ii). the work in connection with the trade is mainly carried
out by beneficiaries of the charity and in either case the
profits are applied solely for the purposes of the charity.
This tax exemption must be claimed (s505 ICTA 1988).
Relief from Capital Gains Tax:
A charity is exempt from CGT on gains accruing to it which
are applied for charitable purposes (s256 TCGA 1992).
Relief from Corporation Tax:
A charitable corporation enjoys the same tax exemptions as
those enjoyed by trustees of unincorporated charities in relation
to its income and gains (s505 ICTA 1988).
Relief from Inheritance Tax:
Gifts and undervalue transfers to charity are exempt from
IHT subject to anti-avoidance provisions (s23 IHTA 1984).
Relief from Stamp Duty:
Exemption from stamp duty applies to any conveyance, transfer
or letter to a charity (s129 FA 1982).
Donations:
Individual and corporate donors to a charity may be entitled
to tax relief for donations made.
Business Rate Relief:
Charities are entitled to 80% business rate relief on any
premises they occupy. This can be extended to 100% at the
discretion of the local authority.
NB Charities do not enjoy any special exemptions from VAT
by virtue of their status.
Other Advantages
Being registered as a charity demonstrates that the organisation
is a charity in law and therefore subject to the Charity Commission's
jurisdiction. This may enhance in the public a sense that
the organisation is reputable. It will also enable the trustees
to seek advice and assistance from the CC.
Charities can apply for grants from trusts/donors who have
a policy of giving only to charities. A registered charity
has more chance of gaining access to and securing funds from
central government, local government, the EU and grant-making
charities.
DISADVANTAGES
1. Charities must comply with charities legislation (imposing,
for example, strict requirements on the keeping and filing
of accounts).
2. Most charities are subject to the jurisdiction of the
Charity Commission. The Charity Commission can institute formal
enquiries in cases of misconduct/mismanagement and has wide
powers including the removal and replacement of trustees.
3. Charities must produce an annual report and annual return.
In practice this is little different from the requirements
for companies, but very different to those for any other non-charitable
organisation.
4. Charity trustees may not generally benefit personally,
whether through receipt of a salary or of profits or otherwise.
5. Personal liability of charity trustees for misappropriation
of funds.
6. Charities are restricted in that their objects must be
exclusively charitable and they cannot, except in certain
circumstances, carry out or fund activities or undertake permanent
trading which falls outside those objects. To overcome this,
a separate non-charitable subsidiary company is often established
to carry out such activities, and covenants its profits to
the parent charity.
In September 2002 the Cabinet Office Strategy Unit published
a report on its review of the Charities and Not for Profit
Sector called "Private Action, Public Benefit".
In July 2003, the Government published its response to the
report, indicating which recommendations it intends to support
and to what extent. Many of the proposals are to be included
in a Charities Bill. It was announced in the Queen's speech
on the 26th November 2003 that a draft Bill will be included
in the next parliamentary session.
The report makes recommendations on the following areas:
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the pre-conditions to being eligible for
charitable status |
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extension of the power to trade (this recommendation
was NOT accepted by the Government) , fundraise and campaign |
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establishment introduction of a new legal form for
charities, the Charitable Incorporated Organisation,
and for non charitable ''social enterprise bodies'',
the Community Interest Company.
Revision of legislation relating to Industrial and
Provident Societies
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measures aimed at improving the accountability
and transparency of charities |
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payment of trustees |
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measures relating to the status and powers
of the Charity Commission |
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increasing the threshold for registration
of charities to £10,000 per annum. (the Government
accepted this recommendation but amended it so that the
threshold would be £5,000 per annum) |
Further information on the proposals of the Strategy Unit
is contained in our briefing note on the subject which is
also available on this website.>>more>>
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