How to set up a charity foundation

One way in which employers can better support their people is to set up a charity foundation for employees, former employees, and their families.

It is usually unlawful for a charity’s class of beneficiaries to be connected by employment. But the relief of poverty purpose is an exception. This means that a business or employer can set up a charity foundation to support the people they care about should they find themselves struggling financially.

Setting up a charity foundation may also be an excellent way for a company to fulfil its environmental, social and governance (ESG) related goals. These goals could be around achieving climate change and sustainability targets, achieving diversity, equality and inclusion aims or aligning with other values intrinsic to the business.

Delivering and demonstrating impact through a charity foundation is becoming increasingly popular. Employers are finding that prospective employees are increasingly keen to understand how businesses are connecting with their communities and delivering on their ESG promises. Setting up a charity foundation is a clear sign of a business’s real commitment to these goals and may help to attract the best talent to the organisation.

How to set up a charity foundation

One way to set up a charity foundation, particularly for smaller businesses, is to apply to the Charity Commission to register a new charity. Any charity with income of over £5,000, or a Charitable Incorporated Organisation (CIO) with any income, must register with the Charity Commission.

There are a few things to consider before taking the plunge to set up a charity. There are four main types of structure: 1. A company charity; 2. A charitable incorporated organisation (CIO); 3. An unincorporated entity and; 4. A trust.

In all structures you’ll need to consider:

What is the objective of the charity?
Who will be the trustees? You usually need a minimum of three trustees. Do they have the right skills?
How will you launch the charity foundation to your employees? How will you ensure awareness continues over time?
How will the charity be administered?

First steps in setting up a charity foundation

Charity foundation governing document

When you have made the key decisions about how to set up your charity foundation, it will be time to draft the charity’s governing document. This is the legal document which operates as the rule book for the charity. It sets out what the charity’s purpose is, its structure, and who runs it. It also establishes what meetings must be held, as well as what happens when the charity is wound up. To get you started the Charity Commission website provides plenty of guidance on what to include in a governing document and how to write it. You may also want to seek legal advice at this stage, particularly if the charity has some complexities.

The cost of setting up a charity foundation

When deciding whether setting up a charity foundation is the right answer, another consideration should be the running costs involved. Even relatively small charities must produce annual accounts for the Charity Commission (and also Companies House if the charity is incorporated). The charity may also require an audit or independent examination. We are here to advise on all of these issues so please don’t be put off. It is just important to be aware of the process and requirements from the outset.

In larger businesses there may already be a corporate charitable foundation. If so the hardship fund could form a fund within this, as long as the governing document allows. Utilising an existing charity in this way should help to minimise any additional costs.

You also want to think about how you will administer applications to the charity foundation from employees. Will the charity have set eligibility criteria that need to be met or means testing? What evidence of hardship will the trustees need to see before awarding any funds? Will you offer grants to people or perhaps loans that will eventually need to be repaid? How will employee confidentially be assured? Agreeing all of this when you set the charity up will ensure a smooth registration and launch.

Once set up, the charity can receive tax efficient donations from the business and staff under the Gift Aid scheme. When a company donates to a registered charity it can claim corporation tax relief by deducting the value of the donation from the profits of the business. The charity itself will usually also be exempt form paying corporation tax and so the entire value of the donation can be retained and put to good use for the beneficiaries.

Where can I find out more about setting up a charity foundation?

You’ll find a wealth of helpful guidance on setting up a charity foundation on the Charity Commission website. If you’d like to discuss setting up a charity then our not profit accounting team can help.

How we set up a charity foundation

Our former Managing Partner (now retired), Andrew Richards, shares the story behind the charity foundation he set up for employees at PKF Francis Clark.

Andrew: The reason I wanted to set up the charity foundation in the first place was because one Saturday morning, my wife and I, about 10 ‘o’ clock in the morning, were in a local town, and I bumped into an ex-employee, and it was very obvious that he’d fallen on financial hardship due to his problems with alcohol.

And this got me thinking that not only would we want to support current employees and their dependents, but also there must be a lot of ex-employees that have either retired or left the firm. Perhaps it’s only morally right that the firm support them. And my partners agreed with me, and that’s when we set up the charity foundation.

We set up a charity with the Charity Commission, and we thought it was really important from day one that the partners, existing partners, at least, weren’t the trustees, so it was totally independent from the partnership, because otherwise, the people making the contribution into the foundation would be those deciding who should benefit from it?

I don’t get to know all of the help that’s been given, perhaps, if I give you three examples, the first of which is the poor and fortunate gentleman who had the problem with alcohol that caused him financial difficulties. We helped him with his rent. Unfortunately, when he passed away, we also helped his widow for a period of time.

We’ve also helped the children of a number of members of staff who have had horrible illnesses where they have needed adaptation to their cars or specialist wheelchairs or other disabled equipment, which have been unaffordable for them. The one that really hit my heart deepest was a member of staff whose daughter was diagnosed to be terminally ill, and she had two wishes. One was to go in a helicopter, and the second one was to go to Disneyland. And the Foundation funded both of those before she unfortunately passed away.

A charitable foundation such as this is very easy to set up. It’s just creating a vehicle at the Charity Commission, so very easy to do and very worthwhile in my opinion.