The Residence Nil Rate Band (RNRB) enables certain individuals to leave more of their estate to their direct descendants, by increasing the amount of the estate that is taxed at 0% from up to £325,000 to up to £500,000 Rules that allow these...
‘We’re all in this together’ is a sentiment widely shared in response to the coronavirus pandemic. A number of companies are turning their resources to providing services and products to key workers and to those in need.
This note provides information for CEOs and business owners considering setting up an associated charity: for activities now and perhaps for the longer-term.
What is a charity?
A charity is a legal structure established exclusively for charitable purposes that benefit the public at large. Briefly, these purposes include (amongst others): the prevention and relief of poverty, the advancement of health or the saving of lives and the relief of those in need because of youth, age, ill-health, disability, financial hardship or other disadvantage.
Charities, trading and tax
As a general principle charities do not pay tax on their income or gains. A charity will therefore not pay any tax on profits made from any trade that furthers its primary charitable purpose or is ancillary to this purpose. Importantly, an existing business that diverts their profit to a charity will not have to pay corporation tax on those profits.
A further general principle is that charities do not receive special VAT treatment but they can, in some cases, benefit from certain VAT concessions.
Independence of operation
It is absolutely crucial that business owners understand that any connected charity must act independently and always only in pursuance of its charitable purposes and for the benefit of the public. Therefore the charity’s trustees will have to recognise and manage risks in associating itself with a for-profit entity: avoiding unauthorised personal benefit; addressing conflicts of interest and at all times protecting the charity’s assets, beneficiaries and reputation.
Charitable legal structures
There are two likely suitable structures to choose from: the Company Limited by Guarantee and the Charitable Incorporated Organisation. Each has its merits but both offer its members limited liability and can fit neatly with provisions already in place (such as accounting periods and office holders) with the existing limited company.
All charitable structures must register with the Charity Commission where their income exceeds £5,000, save for a limited number of charities, such as museums, educational institutions or galleries. If income is, or likely to be, under £5,000 then registration with HMRC will be sufficient.
There are many interesting ways that the commercial world can engage with philanthropy. If you would like advice on your specific situation and the options available to you, please do contact a member of our Charities team.
About Harold Benjamin’s charities services
Our firm assists and advises charities and other not-for-profit entities at every stage of their development. The team provide a co-ordinated, specialist service to charities. A number of our solicitors have been seconded to work as in-house legal advisors at charities and some are, or have been, trustees of charities: we offer a very real insight into the challenges and rewards of the charitable sector.
Arthur Byng Nelson
Director and Solicitor