How to set up a charity foundation

One way employers can support their people, particularly those facing financial hardship during the cost of living crisis, 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.

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 here. 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.

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 setting up a charity is something you would like to discuss further and you’d like some expert advice, then please contact us.