How to set up a charity: An expert guide

Facebook CEO and founder Mark Zuckerberg

Very few are in the same category of wealth as the couple but in my work at Gillespie Macandrew, I see an increasing trend of philanthropy closer to home.

With corporate social responsibility becoming ever more important for businesses, and individuals more aware of the great work that charities do, increasing numbers of people are looking to share their financial achievements with society as a whole by setting up charitable foundations.

While this is an admirable intent and can make big differences to peoples’ lives in Scotland (and further afield) it is worth considering some of the practicalities prior to taking that step.

Lianne Lodge of Gillespie Macandrew. Picture: Peter Devlin

Firstly, it is important to remember that setting up a charity formally means that it can be publicised as such.

Without OSCR (The Office of the Scottish Charity Regulator) registration you cannot operate and refer to yourself as a charity in Scotland.

It also makes it easier to generate income and goodwill. A major consideration is that registration with HRMC allows the charity to benefit from the tax reliefs and exemptions available to charities.

Such benefits can include no Income Tax or Capital Gains Tax, reduced or no VAT in certain circumstances and, of course, the ability to reclaim Gift Aid.

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In order to register with OSCR the charity must conform to one of the charitable purposes defined in legislation. The list of these is wide-reaching including assisting those in poverty, education, ill health or promoting religion, sports, arts, environmental protection, culture, or animal welfare amongst other things.

In addition, the proposed charity must be seen to provide a public benefit.

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Often this can be the stumbling block as the organisation must be able to demonstrate: (a) what it intends to do in terms of activities (i.e. making grants to other charities, providing services or conducting activities itself etc); and (b) how this will provide a direct benefit to the public.

The OSCR Regulations are much more structured than the legislation allowed for pre-2005 when the Charities and Trustee Investment (Scotland) Act came into force. While individuals can make whatever donations (charitable or for any other purposes) they want, charities cannot as they must adhere to their constitution.

The charity, once registered, becomes its own legal entity and should have a clear and robust strategy for consideration of grant applications and providing a public benefit.

The charity should be set up in such a way to provide flexibility going forward.

However, it must also be seen to be fair and objective within its charitable purpose. Equalities legislation means that any discrimination must be provided for in the charity’s founding documents.

While on the face of it, it may seem unlikely that charities discriminate, consider if your charity is set up to help the elderly - you are discriminating against anybody below a certain age and unless your constitution specifically provides for that you will be falling foul of the Equalities Legislation.

It is a good idea to explore your options with a professional if you are considering setting up a charity as there are a host of options and associated benefits, although some options are more restrictive than others.

If you do wish to set up a charity, there are positive incentives and results for doing so. None of the complexities should put you off as long as you obtain the right advice before embarking on the process.

Lianne Lodge, is Associate at Gillespie Macandrew

For more charity news and stories please visit The Scotsman Giving Back