FAQs: Legal structures and charitable status
Please note this section is UNDER REVIEW. For the most up to date information on charitable purposes and activities see NICVA's article on Charitable Status.
Following are answers to a number of frequently asked questions regarding legal structures and charitable status.
Q: How do we prove that we are a charity?
A: The letter from Inland Revenue is evidence that you are a charity for tax and most other purposes
Q: What are the tax advantages to charitable status?
A: Generally most charities are exempt from income tax, corporation tax and capital gains tax. Apart from the income tax associated with donations under the Gift Aid scheme, income tax deducted from certain other types of income attract repayment, for example bank interest, government stocks, royalties and estate income. There are also some advantages (though not blanket exemptions) in relation to Rates and Value Added Tax.
Q: My organisation is a voluntary organisation and registered as a company; does this make us a charity?
A: No. To become a charity in Northern Ireland, you must be established for purposes which are exclusively charitable, and to obtain tax benefits you must be approved and receive a charity recognition number from the Inland Revenue.
Q: How do we set up a community business?
A: Voluntary organisations can set up trading activities or trading subsidiaries. This may affect your charity status. It is wise to seek legal or specialist advice. Charity trading is generally permissible if it falls under one of the following categories:
- Carrying out the charity's primary purpose - e.g. a residential care home charging its residents a fee;
- Selling donated goods - e.g. charity shops;
- Occasional trading activities - e.g. car boot sale; and
- Falls within extra-statutory concession - e.g. dances or fetes.
Q: In a charitable company, are company directors and trustees the same?
A: Yes. The Management Committee members of a charitable company are usually the directors and the trustees. Charity law uses the term ‘trustee' to describe the people who are responsible for the overall control of the organisation (i.e. the Management Committee); whereas company law refers to these individuals as ‘directors'. Check your governing document, but generally the Management Committee members are both directors and trustees.
Q: What are the disadvantages of being a charity?
A: Charities are only permitted to undertake certain charitable activities. This places restrictions on the type of work they can do such as political or trading activities.
Q: What are the main advantages of being a charity?
A: The advantages of being a charity range from tax exemptions to access to grants only available to charities.
Q: What are charitable activities?
A: There are a range of activities acceptable as a charitable organisation/group. If you already have charitable status, check your governing document for activities that have been approved for you organisation. Or click here for more detail.
Q: What activities are not charitable?
A: In general, an organisation is NOT charitable if:
- its purposes are illegal;
- it is set up for the personal benefit of the Management Committee or employees, or other specific individuals;
- the people who will benefit have a personal or contractual relationship with each other (e.g. the beneficiaries are related or connected to the person setting up the charity);
- it is created for the specific purpose of carrying out political activities; and
- its purposes are against the public interest.
In some cases ‘the advancement of religion' is not charitable where the public benefit is clearly lacking.