Registered Charity

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Charities play a crucial role in supporting communities, promoting social good, and addressing a wide range of societal challenges. However, running a charity requires careful management of finances and compliance with regulatory obligations, as overseen by the Charity Commission for England and Wales. This article will delve into the financial responsibilities of charities, the rules governing accounts preparation, independent examinations, and audits, as well as the role of trustees and other compliance-related matters.

Types of Charities

Charities in England and Wales can take several legal forms, each with its own advantages and disadvantages. Below, we outline the most common types:

  1. Charitable Incorporated Organisation (CIO)

   – Pros:

     – Limited liability for trustees, meaning they are not personally liable for the charity’s debts.

     – Separate legal personality, enabling the charity to enter contracts and own property in its own name.

   – Cons:

     – Must be registered with the Charity Commission regardless of income level.

     – Limited to charities only, so it cannot be used for other non-charitable purposes.

  1. Charitable Trust

   – Pros:

     – Simpler structure with no membership; control remains with the trustees.

     – Well-suited for managing charitable assets, particularly for grant-making charities.

   – Cons:

     – Trustees have unlimited personal liability.

     – More challenging to amend the trust deed or to dissolve the trust.

  1. Charitable Company (Limited by Guarantee)

   – Pros:

     – Limited liability for trustees, similar to a CIO.

     – Can engage in charitable trading and hold property in its own name.

   – Cons:

     – Must be registered with both the Charity Commission and Companies House.

     – Ongoing compliance with both charity and company law.

  1. Unincorporated Association

   – Pros:

     – Easy and inexpensive to set up.

     – Good for smaller or more informal charities.

   – Cons:

     – Trustees are personally liable for the charity’s debts.

     – Not a separate legal entity, so contracts and property must be held in the names of individuals.

Setting Up a Charity

To set up a charity in England and Wales, the following steps must be followed:

  1. Choose a Structure

   Decide on the legal structure of your charity (e.g., CIO, Charitable Trust, etc.), as this will determine your obligations and the way your charity operates.

  1. Create a Governing Document

   This is a legal document that sets out your charity’s purpose and rules on how it will be run. Common types of governing documents include:

   – Constitution for CIOs

   – Trust Deed for charitable trusts

   – Memorandum and Articles of Association for charitable companies

  1. Register with the Charity Commission

   – Charities with an annual income over £5,000 must register with the Charity Commission.

   – Charities must demonstrate they exist for the public benefit and meet the Commission’s legal definition of a charity.

Filing Obligations for Charities

Charities are required to maintain detailed and accurate financial records. The **Charity Commission for England and Wales** has specific rules on how charities should prepare their accounts, depending on their size and structure.

  1. Small Charities (Income under £250,000)

   – Small charities can prepare accounts on a **receipts and payments basis** (essentially a cash flow statement) if they are not required to have an audit.

   – A statement of assets and liabilities must accompany the accounts.

   – Filing deadline: 10 months after the financial year-end.

  1. Larger Charities (Income above £250,000)

   – Larger charities must prepare accruals accounts (similar to those of companies) in accordance with the Charities Statement of Recommended Practice (SORP).

   – Accruals accounts include a balance sheet, income and expenditure statement, and a cash flow statement.

   – Filing deadline: 10 months after the financial year-end.

Independent Examination and Audit

  1. What is an Independent Examination?

   An independent examination is a review of the charity’s accounts carried out by someone who is independent and has the relevant ability and experience. It is less formal and cheaper than a full audit but still provides assurance that the accounts have been properly prepared.

  1. Threshold for Independent Examination

   – Charities with a gross income between £25,000 and £1 million can opt for an independent examination instead of a full audit, provided their assets are less than £3.26 million.

   – If the charity’s income exceeds £1 million, an audit is mandatory.

  1. Threshold for Audit

   A charity is required to have a full audit if:

   – The charity’s income exceeds £1 million, or

   – Its gross assets exceed £3.26 million and income is more than £250,000.

  1. Role of the Independent Examiner

   – To check the accounts for consistency with the accounting records.

   – To ensure the accounts meet legal requirements and the charity’s governing document.

   – To report on any concerns if they identify a material discrepancy or breach.

Penalties for Non-Compliance

Failing to meet the Charity Commission’s filing deadlines and obligations can result in penalties, which include:

   – Fines and penalties: If a charity fails to submit accounts or reports on time, the Charity Commission may impose fines.

   – Reputational damage: Non-compliance can harm the charity’s reputation, affecting donations and public trust.

   – Legal consequences: In extreme cases, persistent failure to comply could result in the Charity Commission taking legal action or removing trustees from their roles.

Role and Responsibilities of Trustees

Trustees have a legal duty to ensure the charity is well-run, solvent, and complies with all legal and financial requirements. Some of the key responsibilities include:

  1. Financial Oversight

   – Trustees must ensure proper financial management of the charity, including keeping accurate records, safeguarding assets, and ensuring funds are spent appropriately.

  1. Compliance with Legal Requirements

   – Trustees must ensure that the charity adheres to all relevant laws and regulations, including the Charity Commission’s requirements for annual accounts, independent examinations, or audits.

  1. Public Benefit

   – Trustees must ensure that the charity operates for the public benefit and that its activities align with its charitable purpose.

  1. Conflict of Interest

   – Trustees must avoid conflicts of interest and ensure that personal interests do not influence decision-making in the charity’s best interests.

Key Filing Deadlines

  1. Annual Return:

   All charities with an income above £10,000 must submit an Annual Return to the Charity Commission within 10 months of the financial year-end.

  1. Charity Accounts:

   As previously noted, accounts must be filed with the Charity Commission within 10 months of the charity’s financial year-end.

  1. Trustees’ Annual Report:

   Charities with an income over £25,000 must submit a Trustees’ Annual Report, detailing the charity’s activities, governance, and financial performance.

Charity Policies

A registered charity has to comply with various applicable rules and regulation. In order to be compliant with them and Charity Commission, they need to set up relevant policies. Click here for 64 Charity policies and their templates.  

Conclusion

Running a charity in England and Wales comes with significant financial and regulatory responsibilities. From preparing and filing accounts to ensuring compliance with independent examination or audit requirements, charities must stay up-to-date with their legal obligations. Trustees have a vital role in overseeing the charity’s operations and ensuring it remains compliant with the Charity Commission’s regulations. 

Naail & Co can support your charity with professional accounts preparation, independent examinations, and compliance, ensuring your charity remains fully compliant and focused on achieving its charitable objectives. For more information, book a free initial consultation with us today.

Our service to you

If you are a self employed, business owner/director of company looking to get your accountancy and taxation matters sorted, look no further. We are pro-active and easily accessible accountants and tax advisors, who will not only ensure that all your filing obligations are up to date with Companies House and HMRC, but also you do not pay a penny more in taxes than you have to. We work on a fixed fee basis and provide same day response to all your phone and email enquiries. We will also allocate a designated accounts manager who would have better understanding of your and business financial and taxation affairs. Book a free consultation call using the link below.

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