The Rules Governing Charities

What is a charity?

A charity is a body set up and established for exclusively charitable purposes. In England and Wales, charitable purposes are as set out in the Charities Act 2011 and each of the charity's aims must provide a benefit to the public. This may be only a section of the public, but must not be unreasonably restricted geographically or by ability to pay any fees charged. This new public benefit requirement is a continuing duty for charity trustees throughout the life of the charity.

Following concerns over the personal financial risks faced by charity trustees, a new legal Charitable Incorporated Organisation (CIO) structure has been introduced exclusively for charities. The new CIO offers some of the benefits of being a company, whilst removing many of the onerous reporting and compliance requirements imposed on charitable companies.


The nature of the organisation will determine the most suitable legal structure.

Type of governing document Charity trustees will usually be called

Constitution or Rules

Executive or management committee members

Trust deed


Articles of association

Board, council of management or directors

Model constitution

Charity Trustees

Advantages and limitations of being a charity

Advantages to being a charity include not normally having to pay direct taxes (and there is special VAT treatment in some circumstances), paying no more than 20% of normal business rates and often finding it easier to raise funds than non-charitable bodies.

Charities must not carry out any non-charitable activities, and strict rules apply to trading.


All registered charities must prepare a Trustees' Annual Report and accounts. The basic contents of the Report are mandatory, though the amount of information depends on the charity's size. It should explain the charity's aims and how it is going about achieving them for the public benefit. All charities must keep accounting records and prepare annual accounts which must be made available to the public on request. In England and Wales, charities whose gross income exceeds £25,000 must file the Report and accounts with the Charity Commission and also submit a completed Annual Return. Charitable companies also have to submit accounts and Annual Returns to Companies House.

There are two bases on which charity accounts may be prepared:

  • Receipts and payments basis, which may be adopted where a non-company charity has a gross annual income of £250,000 or less. It consists of an account summarising all money received and paid out by the charity and a statement giving details of its assets and liabilities at the end of the year.
  • Non-company charities with gross annual income of over £250,000, and all charitable companies, must prepare their accounts on the accruals basis in accordance with the Statement of Recommended Practice – Accounting and Reporting by Charities (SORP). They contain a balance sheet, a statement of financial activities (SoFA) and explanatory notes. These accounts are required, in accountancy terms, to show a "true and fair view".

External scrutiny

The Companies Act 2006 largely harmonises the accounting and independent examination regimes for all charities.

Statutory thresholds External Scrutiny required
Gross income not more than £25,000 No external scrutiny necessary, but trustees may choose independent examination or audit
Gross income between £25,000 and £500,000 Independent examination is the minimum requirement, although trustees may still opt for audit
Gross income over £1,000,000* (see Note) Audit required by statute

*applies to any financial year of a charity ending on or after 31 March 2015 (not retrospective)

Note: previously gross income over £500,000, or total assets more than £3.26 million and gross income over £250,000. For charitable companies a statutory audit was required when the total assets exceeded £3.26m, regardless of the income.

There is much useful information available on the website of the Charity Commission

Charities in Scotland

All charities operating in Scotland (including those already registered with the Charity Commission) must register with the Office of the Scottish Charity Regulator (OSCR) and are subject to full responsibilities and requirements under the Charities and Trustee Investment (Scotland) Act 2005. This includes submitting an Annual Return form, with accounts produced under the Charities Accounts (Scotland) Regulations 2006:

Statutory thresholds External Scrutiny required

Gross income less than £500,000 and total assets not more than £2.8 million

Independent examination by a qualified person

Gross income of £500,000 or more, or total assets more than £2.8 million

Audit required by statute

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