Setting Up a Charity in England and Wales: A Complete Guide

Whether you want to run a community food bank, a wildlife conservation project, or a hospice, setting up a charity in England and Wales involves choosing the right legal structure, meeting the Charity Commission's tests, and putting sound governance in place. This guide walks you through the entire process from first principles to annual compliance.

1. What is a Charity?

A charity is an organisation established exclusively for charitable purposes that provides a public benefit. The Charities Act 2011 sets out 13 recognised charitable purposes, which include:

• The prevention or relief of poverty
• The advancement of education
• The advancement of religion
• The advancement of health or the saving of lives
• The advancement of citizenship or community development
• The advancement of the arts, culture, heritage, or science
• The advancement of amateur sport
• The advancement of environmental protection or improvement
• The relief of those in need (by reason of youth, age, ill-health, disability, or financial hardship)
• The advancement of animal welfare

Your charitable purposes must clearly fall within one or more of these categories. The public benefit test requires that the purposes benefit the public or a sufficient section of it, and that any private benefits to individuals are incidental to the charitable purpose. The Charity Commission has published guidance on what constitutes public benefit for each type of charitable purpose.

2. Charity Structures

Before registering, you must choose a legal structure. The four main options are:

• Unincorporated association — the simplest form; two or more people agree to work together for a shared purpose under a constitution. There is no legal personality separate from the members, which means trustees can be personally liable for debts and contracts. Suitable for small local groups with low financial risk and income under £5,000.
• Charitable Incorporated Organisation (CIO) — a legal entity in its own right, regulated solely by the Charity Commission. Provides limited liability for trustees without needing to register at Companies House. The preferred modern structure for most new charities expecting to grow.
• Charitable company limited by guarantee — a company registered at Companies House and regulated by both Companies House and the Charity Commission (dual regulation). Useful if you need to apply for certain grants or tender for public contracts, but involves more administrative burden.
• Charitable trust — a trust deed establishes the charity, which is run by trustees who hold assets on behalf of the charity. Has no legal personality separate from trustees; suitable for grant-making bodies and endowment funds but not for charities that will employ staff or hold property in their own name.

3. Registering with the Charity Commission

Charities with annual income over £5,000 must register with the Charity Commission for England and Wales using the CC21a online application. The process typically takes 6–12 weeks but can be faster for straightforward applications.

You will need to provide:

• Your governing document (constitution, trust deed, or CIO constitution)
• A clear description of your charitable purposes and how you will carry them out for public benefit
• Details of your trustees (at least three) including names, addresses, and dates of birth
• Your organisation's contact details and registered address
• Bank account details (you will need a bank account in the charity's name before applying)

The Charity Commission will assess whether your purposes are charitable and whether the public benefit test is met. They may request further information or ask you to amend your governing document. Once approved, you receive a registered charity number which must appear on all official communications, websites, and fundraising materials.

4. CIO vs Charitable Company Limited by Guarantee

The choice between a CIO and a charitable company is one of the most significant decisions for a new charity:

For most new charities, a CIO is preferable because it has a single regulator, simpler administration, and was designed specifically for charities. A charitable company may be better if you already have a trading company structure or need to demonstrate corporate governance to specific funders.

5. Trustees

Charity trustees (also called directors in a charitable company or members of a CIO board) bear ultimate responsibility for the charity. Key requirements:

• Minimum number: at least three trustees are required for most structures
• Unpaid: trustees must normally act voluntarily; paying trustees requires specific authorisation in the governing document or Charity Commission approval
• Eligibility: a trustee must be 16 or over (18 for unincorporated charities), not bankrupt, not disqualified from being a company director, and not convicted of an offence involving dishonesty
• Duties — prudence: manage the charity's resources responsibly, avoid undue risk, and ensure money is only spent on the charity's purposes
• Duties — loyalty: act in the charity's best interests; declare and manage conflicts of interest
• Duties — compliance: comply with the charity's governing document, charity law, and other relevant legislation

The Charity Commission publishes 'The Essential Trustee' (CC3), which all trustees should read before taking up their role.

6. Charity Accounts

The format of accounts depends on the charity's income:

• Receipts and payments accounts: a simple record of money received and paid out, suitable for charities with annual income under £250,000. Does not require accruals accounting.
• Accruals accounts (SORP): must follow the Charities SORP (Statement of Recommended Practice). Required for charities with income over £250,000, all CIOs (regardless of income), and all charitable companies. Accruals accounts show income and expenditure when earned/incurred rather than when cash changes hands.

Independent examination is required for charities with income over £25,000 (and an independent examiner must meet certain qualification requirements above £250,000). A full statutory audit is required for charities with income over £1 million, or assets over £3.26 million with income over £250,000.

7. Annual Returns

All registered charities must file an Annual Return (AR30) with the Charity Commission within 10 months of their financial year-end. Annual returns are submitted online through the Charity Commission's My Charity portal.

The return asks about:

• Income and expenditure for the year
• Significant events (serious incidents must be reported separately as they occur)
• Fundraising activities and compliance with the Code of Fundraising Practice
• Trustee details
• Any connected party transactions

Failure to file on time can result in the charity being listed as 'overdue' on the public register, which damages credibility with funders and the public. Persistent failure to file can lead to the Charity Commission opening a statutory inquiry.

8. Gift Aid

Gift Aid is one of the most valuable reliefs available to charities. For every £1 donated by a UK taxpayer, the charity can reclaim 25p from HMRC — increasing the value of a £100 donation to £125 at no cost to the donor.

To claim Gift Aid:

• The charity must be registered with HMRC for Gift Aid (separate from Charity Commission registration)
• The donor must make a written Gift Aid declaration (a standard form or online tick-box)
• The donor must have paid at least as much in income or capital gains tax as the charity claims
• Donations must be genuine gifts — not payments for goods or services

The Gift Aid Small Donations Scheme (GASDS) allows charities to claim a top-up payment (equivalent to basic rate tax relief) on small cash or contactless donations of up to £30 per donation without individual declarations, subject to a £8,000 annual cap. Charities with sponsored events should note that donations collected as sponsorship for a participant (e.g. a charity run) can qualify for Gift Aid, but donations linked to a benefit to the donor cannot.

9. Trading and Commercial Activities

Charities can generate income through trading but must stay within the rules:

• Primary purpose trading: trading that directly carries out the charity's purposes (e.g. a theatre selling tickets, a hospice charging for care) is permitted and not subject to corporation tax.
• Ancillary trading: trading that supports the charity's purposes (e.g. a café within a museum) is also generally permitted.
• Non-primary purpose trading: trading that does not relate to the charity's purposes (e.g. selling branded merchandise with no educational purpose) must normally be carried out through a trading subsidiary — a separate company wholly owned by the charity — to avoid jeopardising the charity's assets. The subsidiary pays corporation tax on its profits but can gift-aid its profits to the parent charity, which receives them tax-free.

The small trading exemption allows charities to carry out some non-primary purpose trading directly without a subsidiary, subject to annual income limits linked to the charity's turnover.

10. Merger and Dissolution

When a charity wishes to merge with another charity or close down, the Charity Commission must normally be involved:

• Merger: two charities with similar purposes can merge by transferring assets to the surviving charity. The Charity Commission's CC40 guidance sets out the process. If both charities have compatible purposes, a simple transfer of assets under a merger agreement or a scheme may be used. The Charity Commission Register of Mergers records completed mergers.
• Dissolution: if a charity closes, its assets cannot be distributed to trustees or members — they must be transferred to another charity with similar purposes. The governing document usually specifies what happens to assets on dissolution. The Charity Commission must be notified and, for significant assets or complex situations, a Charity Commission scheme may be required.

Trustees remain liable for any debts incurred before dissolution, so they should ensure all liabilities are settled before closing a charity's bank account and completing the winding-up process.

Key facts at a glance