Introduction

Practical guidance to help charities tackle common misconceptions

Charities play a vital role in society. People’s goodwill and generosity remain the lifeblood of the sector, but this is at risk if the public misunderstand what charities do and how they operate.

Myths and recommendations

Myth 1

Charities spend too much money on fundraising

Charities generate income in a variety of ways. It would be unrealistic to expect charities not to incur any costs when raising funds, or to assume that all charities have the same cost ratios.

Myth 2

Charities should not make a surplus or build up cash reserves

Charities with sizeable reserves can attract critical headlines, but holding funds in reserve allows charities to weather unfavourable circumstances or to invest in new activities.

Myth 3

Charities spend too much on high-paid executives

Despite the majority of charity executives earning modest salaries, reported cases of excessive CEO salaries have created the false narrative that charity executives are overpaid.

Myth 4

Charities should not undertake commercial activities

Charities can carry out primary purpose trading without incurring income or corporation tax, but need to be aware of the tax implications if they undertake commercial activities.

Myth 5

Charities should be run and staffed cost-free by volunteers

While volunteers are the backbone of some charities, such as the RNLI, the Samaritans, or the British Red Cross, even these charities are not able to operate without full-time staff who provide core services and activities.

Myth 6

Charities spend too much money on overheads

It is a myth that a charity’s effectiveness can be assessed by the amount spent on overheads. This misconception can lead to short-term thinking and impact a charity’s ability to achieve its long-term objectives.

Myth 7

Charities don’t have to pay taxes so need less money

Charities are not automatically exempt from tax. Confusion arises because registered charities qualify for some tax exemptions, which leads to a mistaken belief that charities do not pay tax.

Myth 8

You need professional qualifications to become a charity trustee

Not all charity trustees need to have a professional qualification. What is important is an understanding of the role and responsibilities, and the skills to scrutinise and constructively challenge information.

Myth 9

Charities are less vulnerable to fraud than other organisations

Charities are as susceptible to different types of fraud and financial crimes as any other organisation. Charities may be particularly vulnerable to cyber attacks as they often lack resources to invest in cyber security.

Myth 10

Charities should not engage in campaigning and political activity

From anti-slavery movements, to changes in electoral law and the living wage campaign, the voluntary sector has often played an important role in highlighting the need for changes to laws and policies for the benefit of disadvantaged people.

Webinar

Sharing perspectives on common myths about how charities operate

Listen to the webinar from ICAEW's Charity Community, featuring speakers from the guide’s working party. We will demonstrate how charities can use transparent reporting to educate stakeholders in areas where misconceptions are prevalent.

Listen to the webinar