How to Set Up a Charity or CIC in the UK: Legal, Financial & Tax Considerations
Starting a charity or Community Interest Company (CIC) can help give back to your community or address a pressing social issue. Whether you’re driven by a charitable cause or a broader community benefit, the legal, financial, and tax framework you establish at the outset can make the difference between long-term sustainability and compliance issues further down the line.
At Hartley Fowler, we work closely with charities and not-for-profits and understand how important it is to start with clarity. This can be especially helpful when it comes to compliance and financial management.
Here’s what you need to know before setting up a charitable organisation in the UK.
Choosing the Right Structure
The first major decision is determining whether your organisation will operate as a registered charity or as a Community Interest Company (CIC). These differ significantly in how they are regulated, taxed and structured.
Charities
To qualify, charities must show that their purpose fits within the Charity Commission’s list of ‘charitable objectives’, such as education, health or poverty relief. They must also ensure that their activities deliver a measurable public benefit. They are regulated by the Charity Commission and benefit from favourable tax treatment, including eligibility for Gift Aid and various reliefs. However, they are more restricted in how they operate, particularly when it comes to trading and paying trustees.
CICs
CICs are often chosen by social entrepreneurs who want more flexibility. A CIC must exist to benefit the community, but it is regulated by Companies House and the CIC Regulator rather than the Charity Commission. Directors can be paid, and trading activity is often easier to manage. CICs don’t automatically receive the same tax reliefs that charities do.
Charities themselves can be structured in several ways. A Charitable Incorporated Organisation (CIO) is popular due to its limited liability and streamlined reporting, while charitable companies are more suited to larger or more complex operations.
The Legal Registration Process
Once you’ve chosen the right structure, you’ll need to complete the appropriate registration process.
Charities
For charities, this involves registering with the Charity Commission if your income exceeds £5,000 per year. You may also need to register with Companies House if you’re forming a charitable company. You’ll need to submit governing documents such as a constitution or articles of association, along with evidence that your organisation meets the criteria for charitable status.
If your charity’s income is under the threshold, you are not required to register with the Charity Commission, but you can still operate legally as an unregistered charity. You must still comply with charity law, keep proper financial records, and act in line with your charitable objectives. In some cases, unregistered charities may still wish to register voluntarily to improve transparency and credibility with donors or funders.
CICs
CICs are registered directly through Companies House. As part of the process, you’ll need to submit a community interest statement explaining how your organisation will benefit the public, and adopt a specific version of the articles of association that reflect CIC requirements.
Clear governance documentation is crucial at this stage. These documents will define how your organisation is run, who makes decisions and how you remain accountable to stakeholders and regulators.
Financial and Compliance Obligations
Setting up the right legal framework is only the beginning. Both charities and CICs must comply with strict financial and reporting requirements.
Charities
Charities are required to maintain proper accounting records and submit annual accounts to the Charity Commission. Depending on their size, they may also need to undergo an independent examination or audit. If the charity is also registered as a company, filings will be needed at Companies House as well.
CICs
CICs follow a similar route in terms of financial reporting. They must file accounts and an annual CIC report with Companies House, and submit a Corporation Tax return to HMRC. While these filings can seem straightforward at first, the expectations around transparency and accountability are growing. Mistakes or delays can lead to penalties and may even put your organisation’s reputation at risk.
Having bookkeeping practices in place from day one is essential. This includes keeping accurate records of all income and expenditure, such as maintaining a cash book, recording donations and grants, and tracking expenses against specific projects or funding streams. It’s also important to establish clear internal controls and governance processes to ensure public funds are managed responsibly.
Understanding Tax Implications
A commonly overlooked but important step is understanding how your organisation will be treated for tax purposes.
Charities
Once recognised by HMRC, charities can benefit from a range of tax exemptions. These benefits include eligibility for Gift Aid, which increases the value of donations by 25%. Charities may also receive business rates relief on premises used for charitable purposes. They can also benefit from VAT exemptions or reduced rates on certain goods and services. In most cases, charities are also exempt from Corporation Tax on income used for charitable activities.
CICs
CICs are generally treated as standard companies for tax purposes. They must register for Corporation Tax and pay tax on their profits unless exemptions apply. While they do not automatically qualify for Gift Aid or other reliefs, they can still access funding through grants, donations, and contracts for service delivery.
If a CIC is planning to carry out trading activities, or if a charity is exploring commercial ventures, it’s worth considering a trading subsidiary. A trading subsidiary is a separate company owned by the charity or CIC, created specifically to handle commercial operations. This structure allows the organisation to manage trading activity in a more tax-efficient way, while protecting the charitable assets from risk.
How We Can Help
At Hartley Fowler, we support charities and CICs through every stage of their development, from initial registration and structuring to ongoing financial management and reporting.
We can help you:
- Choose the most appropriate legal and tax structure
- Register with the Charity Commission, Companies House, and HMRC
- Set up robust financial systems and bookkeeping processes
- Prepare statutory accounts and handle independent examinations or audits
- Maximise tax efficiency and manage Gift Aid claims
- Provide ongoing advice on compliance, governance, and growth
Contact Us Today
Thinking about setting up a charitable organisation? Our expert team can help guide your charity or CIC through the process. Contact us today to find out more.