Registering a charity: What is a charity?

To be a charity in England and Wales, an organisation must be established for charitable purposes only and be subject to the control of the High Court’s charity law jurisdiction.

An organisation cannot be a charity if it is subject to another country’s jurisdiction (including Scotland, Northern Ireland, the Isle of Man and the Channel Islands). The following four indicators are a good test of jurisdiction:

• The governing document adopts the laws of England and Wales;
• most of the trustees live in England and Wales;
• most of the organisation’s property and funds are held in England and Wales; or
• the organisation’s centre of administration is in England and Wales.

This does not mean that an organisation cannot operate overseas. Rather, the Commission makes a registration decision under the law of England and Wales and a charity is governed by this law even when all of its work is carried out abroad.

Moreover, for all non-CIO applications, the organisation must demonstrate an annual income of £5,000. This derives from Section 30 of the Charities Act 2011. The Commission can exercise discretion in relation to voluntary registrations but will only consider this in very exceptional circumstances. The Commission will not consider an application simply because the trustees believe that they will have difficulty attracting funding without a registered charity number. Further information on fundraising can be found here.

The Commission accepts the following as proof of income:

• Latest annual accounts;
• a recent bank statement directly related to the organisation (and that statement should demonstrate an income of £5,000, as opposed to a balance); or
• a formal offer of funding from a recognised funding body.

A recognised funding body is generally taken to mean an established body such as Arts Council England or National Lottery, central or local government or a formal offer from a grant making body already registered as a charity in England and Wales. The Commission cannot accept donation or pledge letters as these are not legally binding guarantees of funding.

Once the applicant has confirmed that their organisation will meet the jurisdiction and minimum income requirements, they must consider whether the organisation is established for an exclusively charitable purpose.

A ‘purpose’ is what an organisation is set up to achieve and is outlined in the objects clause of the governing document. To be charitable, that purpose must fall within one of the thirteen descriptions of purposes in the Act and be for the public benefit. Our next article will cover public benefit in more detail and a later article in this series will explore how to write charitable purposes.

These descriptions encompass everything that has been or may be recognised as charitable – they are the ‘houses’ within which different charitable purposes ‘live’. Some descriptions are purposes in their own right (such as the prevention or relief of poverty) but others are broad, can have more than one meaning and are therefore not unambiguously charitable on their own (such as the advancement of citizenship and community development).

Before applying to register as a charity, we recommend:

• Considering where the organisation’s purpose might fall within the thirteen descriptions of purpose
• Consulting our guidance documents in further detail once a description of purpose has been identified to confirm that the organisation meets the specific criteria for its charitable purpose
• Filling out the application form, keeping in mind the required standards and expectations
• If, after some consideration, the applicant cannot find a description of purpose to match to, it may be that the organisation is not a charity and registration is not suitable

Crucially, not everything that benefits a community or that is commonly understood to be ‘good’ or philanthropic is necessarily charitable in law. Many organisations are set up to do things which have benefits for the wider community or the general public but not all of these organisations will be capable of being charities. The following are examples of where an organisation’s work may be ‘good’, but is unlikely to be exclusively charitable:

• Organisations that provide a range of indiscriminate assistance to the community (such as non-means tested pantries or cafes), that run general community events and activities (such as festivals, village shows or Christmas lights displays), or residents’ associations formed for the general interests of a small area;
• organisations that are established for the sole purpose of fundraising and providing general donations;
• community radio stations or local newsletters that aim to entertain and inform;
• organisations that provide assistance or support to businesses or the local economy;
• inward-looking membership organisations that are focused on the (often professional) advancement or improvement of its membership; or
• organisations that are established for the sole purpose of campaigning or changing or overturning laws or government policy.

There is a distinction between having a purpose, from which it may be possible to identify charitable outcomes, and having a charitable purpose and undertaking activities only for the achievement of that charitable purpose. For example, promoting environmentally friendly local businesses may engage some charitable outcomes but it is unlikely to further an exclusively charitable purpose.

Ultimately, it is a matter for the applicants to clearly demonstrate how what they are doing is directed towards exclusively charitable purposes for the public benefit. If, after considering our guidance, you do not believe a charity structure is appropriate or your application has been refused registration, then you can consider alternatives to setting up a charity. Other options such as CICs may provide better flexibility given that the rules on charity do not apply.

Our next article will focus on the public benefit requirement, what makes a purpose ‘beneficial’, what is meant by a sufficient section of the public and how any personal benefit may or may not be incidental.

^{*The views expressed are the author’s and not ICAEW’s.}