Running a nonprofit organisation in the UK is a fulfilling endeavour, but it is also a legally complex one. Whether you are a new founder or a seasoned trustee, understanding the legal framework is crucial for compliance, transparency, and long-term impact.
This blog post provides an overview of the key legal and regulatory considerations for UK nonprofits (which are often referred to as charities in England and Wales). This blog is drafted only to share general information on the topic by Aman Solicitors Birmingham, serving the community since 2002.
1. What Defines a UK Nonprofit/Charity?
In the UK, the term “nonprofit” broadly covers organisations that are mission-intent rather than profit-intent. If an organisation has exclusively charitable purposes and is for the public benefit, it is legally defined as a charity, even if it is not yet registered with the Charity Commission.
Key legal requirements include:
Public Benefit: The organisation must be able to demonstrate that its activities provide a clear, positive benefit to a section of the public, and not just a private group or individual.
Exclusively Charitable Purposes: The organisation’s aims must align with one or more of the specific descriptions of charitable purposes outlined in the Charities Act 2011 (e.g., relief of poverty, advancement of education, health, or environmental protection).
2. Choosing the Right Legal Structure
Selecting the appropriate legal structure is one of the most critical decisions you will make, as it affects liability, governance, and reporting requirements. The main structures for charities are:
| Structure | Description | Key Feature |
|---|---|---|
| Charitable Incorporated Organisation (CIO) | A legal form designed specifically for charities, registered only with the Charity Commission. | Trustees have limited or no personal liability, and it avoids dual registration with Companies House. |
| Charitable Company Limited by Guarantee | A company structure used for charities, registered with both the Charity Commission and Companies House. | Offers limited liability, suitable for those with employees, contracts, or property. |
| Unincorporated Association | An informal, flexible structure governed by a constitution. | Suitable for smaller, lower-risk organisations. Trustees are personally liable for debts. |
| Trust | Governed by a trust deed, typically used for managing charitable funds or assets for a specific purpose. | A straightforward structure, but trustees face personal liability. |
3. Registration and Regulation
The steps you take after leaving the scene are equally critical for building a robust case for compensation.
Organisations in England and Wales must register with the Charity Commission if their annual income exceeds £5,000. Northern Ireland and Scotland have their own respective regulators (OSCR in Scotland).
Registration involves a rigorous process to ensure the organisation meets all legal requirements. Aman Solicitors Birmingham can help in the documentation and other related framework due to its vast services portfolio spannign over two decades of excellence in the field. Once registered, charities are subject to ongoing oversight, including submitting annual returns, reports, and accounts where our specialised team of solicitors jump in to help.
4. Essential Governance and Compliance
Good governance is paramount for building trust and ensuring the charity operates within the law. Trustees are responsible for the charity’s management and compliance.
Key compliance areas include:
- Trustee Duties: Trustees must act in the charity’s best interest, manage resources responsibly, and ensure compliance with their governing document and the law.
- Financial Controls: Implementing strong financial policies and reporting mechanisms is vital to prevent mismanagement and ensure transparency.
- Risk Management: Charities are expected to have a framework for identifying and mitigating potential risks, from financial threats to safeguarding concerns.
- Trading Restrictions: Charities can carry out ‘primary purpose trading’ related to their mission. Non-charitable trading (e.g., a gift shop selling unrelated items) is permitted but subject to strict turnover limits and tax rules.
5. Staying Informed and Seeking Advice
UK charity law is dynamic, with recent changes such as the implementation of parts of the Charities Act 2022 and considerations around the Economic Crime and Corporate Transparency Act 2023. Staying informed is essential.
While general information is widely available, specific situations often require professional legal guidance. Consulting with a specialist charity lawyer ensures that your organisation thrives within the legal framework and makes a lasting impact on society.
Comprehensive Support: Handling the entire administrative burden, from paperwork to deadlines, allowing you to dedicate all your energy to recovery.
Our categorised service portfolio enables us to cater to all aspect of compliance from employment, leasing and rental disputes, matters related to immigration, asylum or human rights, Aman Solicitors Birmingham got you covered.
Addressing Common Concerns
What is the difference between a “nonprofit” and a “charity” in the UK?
“Nonprofit” is a broad term for organisations that don’t distribute profits to owners. A “charity” is a specific type of nonprofit that has exclusively charitable purposes for the public benefit as defined by the Charities Act 2011. Charities benefit from tax reliefs and regulatory oversight by the Charity Commission (or OSCR/CCNI in Scotland and Northern Ireland).
Do we have to register with the Charity Commission?
In England and Wales, you must register if your charity’s annual income is over £5,000. Charities with a corporate structure, like a Charitable Incorporated Organisation (CIO), must register regardless of income.
Which legal structure is best for my nonprofit?
Common structures include a Charitable Incorporated Organisation (CIO), a company limited by guarantee, a trust, or an unincorporated association. A CIO is often preferred as it offers limited liability for trustees and avoids dual regulation by Companies House. Your choice depends on your organisation’s size, activities, and risk profile.
Can charity trustees be paid?
Generally, trustees are volunteers and are not paid for their services. However, they can claim reasonable expenses incurred in carrying out their duties (e.g., travel costs). In very specific, limited circumstances, a charity may be able to pay a trustee for a specific service if permitted by the governing document and the Charity Commission rules.
How many trustees should a charity have?
Your governing document will specify the minimum and maximum number. It is generally advised to have a minimum of three trustees for effective governance.
Are trustees personally liable for the charity’s debts or actions?
It depends on the legal structure. In an unincorporated association or a trust, trustees can be personally liable. In an incorporated structure (like a CIO or company limited by guarantee), the organisation is a separate legal entity, which typically protects trustees from personal liability, provided they act reasonably and within the law.
What are the rules regarding “non-purpose trading” income?
Charities can generate income from activities directly related to their primary purpose (e.g., a museum selling exhibit tickets). Income from ‘non-purpose trading’ (e.g., a general gift shop) is permitted up to specific limits without incurring a substantial tax liability. These limits vary based on the charity’s total income.
Do we need specific policies?
Yes, having key policies is essential for good governance and compliance. Essential policies often include financial controls, risk management, safeguarding (if working with vulnerable people), and data protection (GDPR).
What are our obligations under GDPR and data protection law?
Charities must comply with the UK General Data Protection Regulation (GDPR) when collecting, storing, and processing personal data (e.g., donor information, volunteer details). This includes registering as a data controller with the Information Commissioner’s Office (ICO).
Can a charity engage in political activities?
Charities must be strictly non-partisan. They can campaign or advocate for changes in law or policy that further their charitable purposes, but they must not engage in party-political activity or support specific political candidates or parties.
