Starting up a charity: a beginner’s guide

Starting up a charity: a beginner’s guide

Are you looking to raise funds for a social cause and start the process of forming your own charitable organisation?

Charities and not-for-profit organisations play a critical role in our society – especially in these times of public sector austerity. They provide vital care, invest in social projects and have a positive impact on the lives of many.

But a word of caution – starting a charity is not as easy as one may think. Not only are there the regulatory hurdles to pass but also the ongoing responsibilities of trustees in relation to the governance and maintenance of the charity.

So, if you’re looking to found a charity, there are a few key considerations you should be aware of before diving headlong into the process.

Researching your charitable cause

The first thing to check is whether there are other established charities raising funds and investment for the specific social cause you’re aiming to provide for.

Do your research, get online and let Google do some of the hard work for you. Search for key terms around your charitable cause – whether it’s children’s hospices or funding for medical research – and look for other organisations that may be targeting this particular issue.

You obviously want to create the biggest impact from your charitable efforts – and raising the funds and passing them across to an already established charity may achieve this more effectively. If this charity has exactly the same aims as the one that you’re proposing to set up, there’s little to be gained from putting yourself in competition and dividing the potential fundraising pot.

Overcoming increased due diligence

Public trust in the financial running of charities has been dented in recent years, with high-profile cases of financial mismanagement. To curb this, the Charity Commission – the regulatory body for all UK charities – has increased the due diligence process that new charities and potential trustees must go through.

Trustees must agree to deal with any conflicts of interest, put relevant financial controls in place, manage any potential risks to the charity and engage the advisers needed to meet their governance requirements.

Detailed explanations of your charity’s structure, governance process and trustees roles are needed as well, meaning there’s a reasonably hefty amount of paperwork and form filling to complete before you even begin to meet the requirements for becoming a registered charity.

Working with a professional adviser

If you’re planning to set up a charity, you’ll almost certainly need professional advice to meet the requirements of the registration process. Working with an expert helps to lighten the administrative load and streamline the whole process of registration.

It’s imperative to obtain advice from a professional, such as a chartered accountant that specialises in the charity sector. Not only will they help you deal with the registration process, they can provide ongoing advice on all aspects of running the charity and meeting those requirements for good quality financial management.

With the insight and hands-on knowledge of an experienced adviser you’ll have a full understanding of the responsibilities that go hand-in-hand with being a trustee.

Managing your finances effectively

One of the key challenges for any charity will be the strict reporting and financial controls that the Charity Commission insists upon by law.

An effective way to stay in control of your financial affairs, and to get the level of reporting transparency that’s required, is to use a cloud-based accounting system as the foundation for your financial management.

Systems such as Xero, QuickBooks or KashFlow allow you to access your accounts and key numbers online, at any time – giving you an excellent oversight of the current status of your fundraising and overheads. They also allow fast and effective reporting on your accounts – making it easier to provide up-to-date management accounts for your trustees.

Dealing with Gift Aid and HMRC

Registered charities don’t pay tax on the majority of their income – as long as there’s proof that the money is being used for your stated charitable purposes.

But it’s likely that your charity will have to deal with HM Revenue & Customs (HMRC) in relation to Gift Aid – the mechanism for charities to claim back the basic rate tax that will have been paid by any donors.

The guidance around claiming Gift Aid has been tightened up significantly in recent times, in line with other moves to improve the governance of charity finances. The outcome of this is a relatively complex system for dealing with Gift Aid – meaning there’s real value in having a professional tax adviser on board to help your organisation navigate the more difficult waters of the system.

The value of expert advice

Having a trusted adviser to work with has significant value when you’re starting out as a charity. The regulatory and financial hoops you’re required to jump through are many, and with a professional charity adviser on board you’re better equipped to leap through, rather than floundering face down at the first hurdle.

Obtaining professional help for your charity isn’t cheap – in part because of the time commitment needed to give truly tailored advice and set up your charity efficiently and correctly. A minimum cost of £700 to £800 plus VAT should be budgeted for when working out your start-up costs – with the possibility of an ongoing fixed monthly fee if you engage your adviser on a long-term basis.

For more general guidance, there are some terrific guides for charities and trustees on the Charity Commission’s site. But each charity will have it’s own specific needs and issues, where working with a professional charity consultant is the best solution for the long-term success and social impact of your charity.

If you’re in the process of starting a charity, please do get in touch to find out how we can assist you with the registration process.

You can find out more about our services for charities here.