If you have significant resources and want to “make a difference”, or you have a specific charitable aim or project which no existing charity seems to cater for, you may find yourself considering whether to create your own charity.

You should be able to claim the same charitable reliefs and allowances on gifts to your own charity that you could claim if you were making gifts to any other charity. You could even make a gift to your charity under your will, which allows you to take advantage of the lower rate of Inheritance Tax.

What is a charity?

Essentially, a charity is an organisation established for exclusively charitable purposes for the public benefit.

Some well known charitable purposes include the relief of poverty and the advancement of education. However the list of charitable purposes is not exhaustive and new charities with innovative purposes are created each year. To be recognised as charitable, an organisation must also demonstrate that its charitable purposes are for the public benefit.

Those in poverty must not be excluded from benefit, and any private benefits received from the organisation by someone who is not a beneficiary of the organisation must be no more than incidental to the carrying out of the organisation’s objectives.

Most common legal structures

The main legal structures used by charities can be divided into those that are unincorporated, such as a trust, or an unincorporated association; and those that are incorporated, such as a company limited by guarantee (CLG), or a Charitable Incorporated Organisation (CIO).

At present, the most common form of incorporated structure for a charity is the CLG, although the new CIO structure is expected to grow in popularity. The Charity Commission has been accepting applications to register completely new organisations as CIOs since 10 December 2012.

What is the difference between an unincorporated structure and an incorporated structure?

The main difference between an unincorporated structure and an incorporated structure is one of legal identity.

With an unincorporated structure, the trust or association has no legal personality of its own. This means that, if a trust or an association enters into a lease or employs a person, it is the individual trustees who sign on the dotted line and are personally liable under the terms of the lease or employment contract. With an incorporated structure, the

CLG or CIO has its own separate legal identity. If a CLG or CIO enters into a lease or employs a person, it can enter into such contracts on its own behalf. This means that the CLG or CIO is itself liable under the terms of such contracts, rather than its trustees. The availability of “limited liability” to trustees of CLGs and CIOs can make these structures more attractive than a trust or association, where an organisation is or is becoming involved in substantial contracts.

Regulation

All charities are regulated by the Charity Commission. Charitable CLGs are also regulated by Companies House.

In addition, in order to qualify for the tax reliefs available for charities (and for donors to obtain the reliefs on gifts to charities), a charity must apply to HMRC to be recognised as a charity.

What kind of charity to set up?

The answer to this question very much depends on the size and activities of the proposed charity.

If your charity will be employing staff, leasing premises, or entering into complex contracts for the provision of services, you may wish to consider an incorporated legal structure rather than an unincorporated legal structure. For larger charities with complex financial affairs (especially those with secured loans) the CLG structure may be a more appropriate option than the CIO structure.

However, for charities without these kinds of arrangements, a simple charitable trust may be the answer. It’s best to take legal advice on this point, once you decide what your charity is going to be doing.