It is not uncommon for successful individuals and those in the public eye to create a charity to further a social cause, channel philanthropic activity or leave a poignant legacy.
There are many advantages to creating a charity, not least a generous tax landscape, but it will come with considerable and sometimes onerous compliance obligations. Get it wrong and the Charity Commission, the body that polices charities, will take action, as supermodel Naomi Campbell discovered in October this year.
Campbell’s charity, Fashion for Relief, held a star-studded fashion show and charity auction at the British Museum in 2019 saying it was working with the global children’s charity Unicef UK and the Mayor’s Fund for London.
Unicef UK said that it had never been a partner of Fashion for Relief, was unaware of the event and had received no proceeds from the fundraiser, reporting the Campbell’s charity to the Charity Commission.
The Charity Commission in October banned Naomi Campbell from running a charity for five years having uncovered ‘financial mismanagement’ and ‘chaotic management’. Of the £4.8m it raised, just 10% was spent on charitable activity, with the Charity Commission revealing that Campbell had run up bills for hotels, flights and spa treatment all at the charity’s expense.
It is just one example of the care and attention needed to comply to Charity Commission rules and regulations should you wish to create your own charity.
So what are the advantages and disadvantages of creating a charity?
Advantages of charitable status
- Perhaps one of the key benefits of charitable status is the trust and credibility it gives donors, volunteers and beneficiaries.
- In many cases, charities do not pay corporation tax, capital gains or stamp duty and can in certain instances get special VAT treatment.
- Business rates. Charities will pay a discounted rate of business rates for premises that they occupy for charitable purposes.
- Gift Aid can be claimed in donations by individuals as long as that donation is not in exchange for goods and services.
- Donors can reduce liability to inheritance tax on donations and can potentially reduce their income tax liabilities.
- Grants and funding. There are grants and funding pools that are available only to charities, although strict criteria will need to be met.
Disadvantages of charitable status
- Charitable purpose. A charity must have a charitable purpose and if too tightly defined can limit its ability to explore other charitable avenues or trading opportunities.
- Charities are, quite rightly, expected to hold high levels of accountability and compliance with oversight from the Charity Commission. This will include annual reporting and the appointment of trustees.
- Charity trustees must always act in the best interests of the charity, avoiding any personal conflicts of interest. Many charities struggle to recruit the trustees needed to operate effectively.
- Charity founders and trustees cannot receive a financial benefit from the charity unless authorised by its founding and governing documents and authorised by the Charity Commission. This will extend to taking a salary and awarding contracts to the founder or trustees’ businesses.
- Political campaigning by charities is also highly restricted.
Individuals should not underestimate the responsibilities that come with founding and running a charity to support or further a favourite cause. It will be helpful to first take advice and explore other options that might achieve the same aim, perhaps through direct giving or partnering with the various community foundations across the country that help individuals and families with philanthropic activity.
Contact our Private Client Solicitors
If you are in need of advice or assistance on any of the legal issues mentioned in this article, please contact Olivia Meekin, Partner or any member of our experienced Private Client team on 020 7631 4141 or email privateclient@bishopandsewell.co.uk
The above is accurate as at 06 November 2024. The information above may be subject to change.
The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.
