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Is it worth being a registered charity?
Clearly there are some practical benefits to being a registered charity in terms of the ability to obtain funding from funders and donors. There are also certain tax concessions, such as rate relief, but at the same time there are tax disbenefits relative to other legal forms, such as the inability to reclaim VAT.
As several people pointed out, the ratio between the advantages of registration and the regulatory burden it imposes may be somewhat relative to size. Although larger organisations may fall under the scope of more regulation because of their activities, as a rule they will have a greater capacity to comply. They are better placed to take advantage of benefits like rate relief, as they are more likely to have premises, or Gift Aid, as they are more likely to engage in large-scale public fundraising. Towards the smaller end of the spectrum the benefits of registration are less clear.
Take the accounting requirements as one example. A charity with an income of just £5000 must register and produce annual accounts. A charity with an income of £5 million must also do so, and these accounts will involve a more intensive process, but the cost relative to total income will be much less. Further, the benefits of having full audited accounts for an organisation entrusted with several million pounds are much more obvious – for the organisation itself as well as the wider public. For very small organisations which have no interest in obtaining grants or driving up their income levels, the regulatory burden as it stands may be too great to make it worth registering.
However, many people who responded to the survey noted ‘public trust and confidence’ as a major reason why registering was worth it. This may seem idealistic to some, but the fact is that the concept of charity has been with us for hundreds of years. It is ingrained not just within the law but in the very public consciousness of this country. It is still associated with high levels of trust, even this not always deserved or if it is perceived as eroding or under threat. There appears to be a certain threshold at which groups of citizens find they need charitable status as a sort of marker to indicate the seriousness of their intentions and cause. This may in itself be enough incentive to register – indeed, many very small charities are registered even if they are not required to be.
But what about legal forms other than charity? Many charities, especially larger ones, have had dual status for years, being both registered charities and registered companies. Or, as several people pointed out, they have set up company trading arms to generate profits which are redirected to the charity, which seems a somewhat more cumbersome option. This has allowed them to be able to generate income through enterprise, whilst retaining the charity brand. These organisations have been acting as de facto ‘social enterprises’ for years, before the term became fashionable.
Several recent developments have sought to provide some alternatives to traditional charity status. The development of the Community Interest Company (CIC) has provided a not-for-profit business model which is geared towards social objectives. The Charitable Incorporated Organisation (CIO) is intended specifically for charities which don’t want dual registration with the Charity Commission and Companies House. However, this form is still being developed by the Charity Commission and at the moment it looks like it will be excessively complicated.
Whilst these are interesting developments, it is hard to see how they are anything other than experimental at this point when you look at the numbers. There are somewhere between 160,000 and 190,000 registered charities, depending on how you count them, and the register is growing all the time. According to the CIC regulator there are only around 1700 registered CICs – roughly 1% the number of charities. The CIO isn’t even in force yet.
There is clearly quite some way to go before these forms really take hold, even among those organisations or individuals who want to use them as tools to achieve social change. Even those charities already engaged in enterprise are not, by and large, ditching their charitable status in favour of something else, whatever they may call themselves. They are simply doing what they always have; taking a measured look at the environmental circumstances and making decisions in the best interests of their beneficiaries.
Yet there is an increasingly evident strand of thinking that views charity as old-fashioned, unsustainable, dependent and in urgent need of modernisation. Even some of the current discourse from government seems to reflect this view, without necessarily acknowledging it consciously. It is heavily influenced by a free-market ideology which sees business solutions as inherently the most efficient and effective for any given problem, almost by default. In this light, organisations that rely wholly or in part on public goodwill and donations are somehow outmoded.
It’s clearly too early to tell whether the new legal forms will prove to be lasting vehicles for achieving social objectives. What is clear is that the concept of charity has successfully adapted to remain relevant to vastly different social, legal and environmental conditions for several hundred years. Charity is not going to go away anytime soon. It is too important to the social fabric of this country.
For more about Community Interest Companies, see the CIC Regulator website at:
http://www.cicregulator.gov.uk/
For more about Charitable Incorporated Organisations, see the Charity Commission’s website at:
http://www.charity-commission.gov.uk/registration/charcio.asp