The pros and cons of setting up a charity
As specialist charity accountants, we know that many charitable organisations begin life as community or family concerns, often with no formal structure. However, as things grow, it may be in your best interest to set up a charity.
There are lots of things to think about before you set up a charity and we recommend that you discuss your options with a specialist to ensure that setting up a charity is the right option for your entity.
In the meantime, please read on as we discuss the pros and cons of setting up a charity.
Pros of setting up a charity
- In most cases, charities do not pay income/corporation tax, capital gains tax or stamp duty.
- In most circumstances, charities can benefit from special VAT treatments.
- Charities are often able to raise funds from public donations, grant-making trusts and local government more easily than non-charitable entities.
- Charities that occupy property can benefit from reduced business rates on buildings that are used to further their charitable purpose.
- Charities can claim gift aid on donations made by private individuals as long as the donation is not in exchange for goods or services.
- Gifts to charities are usually free of inheritance tax.
- Charities benefit from trust and recognition that non-charitable entities may not.
Cons of setting up a charity
- A charity must have exclusively charitable purposes, which can limit its ability to trade. Non-charitable entities can continue if carried out by a separate non-charitable organisation.
- In most cases, trustees of a charity cannot receive financial benefits such as salaries. This restriction can also apply to spouses, relatives or partners of a trustee.
- Charity law imposes certain financial reporting obligations that non-charitable entities may not be subject to.
- Trustees must avoid situations where charitable and personal interests conflict.
We hope that you’ve found this article helpful. If you’re still thinking about setting up a charity, please get in touch with our specialist team, we would be happy to help.
Find out more about or specialist accountancy services for charities.
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