What is a charity?
A charity in Scotland is an organisation registered with the Office of the Scottish Charity Regulator (OSCR) having met the charity test. To meet the charity test, an organisation must have only charitable purposes and must provide public benefit in Scotland or elsewhere. In addition it must:
- not allow its property to be used for non-charitable purposes
- must not allow Ministers to direct or otherwise control its activities
- must not be a political party, and not have as its purposes the advancement of a political party.
Voluntary organisations come in all different shapes and sizes and not all are charities. Of the 45,000 voluntary organisations in Scotland, only half are registered charities. Find out more about charitable status.
Charitable status is not in itself a legal structure. If you wish to apply for charitable status you first have to decide on a legal structure. Find out more about legal structures.
What is a voluntary organisation?
Voluntary organisations are non-profit driven, non-statutory, autonomous and are run by individuals who do not get paid for running the organisation.
What is a SCIO?
A Scottish Charitable Incorporated Organisation (SCIO), is a relatively new legal form for registered Scottish charities. The SCIO is a legal entity so it can enter into contracts, employ staff, incur debts, own property, sue and be sued. There are important differences between being a SCIO and being any other type of body with charitable status in Scotland. Before applying to become a SCIO, organisations need to be fully aware of the implications that this form of charitable status brings.
The Office of the Scottish Charity Regulator has more information on SCIOs.
We have information on how to set up a SCIO.
What is social enterprise?
Social Enterprise is a term which describes the purpose of an organisation, rather than its legal form. A Social Enterprise is a business that trades for a social and/or environmental purpose. Social Enterprises exist to make a profit just like any private sector business. However, profits or surpluses are always reinvested into their social and environmental purposes. Social Enterprises also have an “asset lock” on all their buildings, land and other assets. Social enterprises can be set up in many different ways, some are registered charities and some are not. Further information about setting up a social enterprise is available from Social Enterprise Scotland.
OSCR has answered some Frequently Asked Questions about Social Enterprises
TFN has a useful article ‘Everything you need to know about social enterprises’
No, but if you are fundraising for an existing charity you will need their permission to use their name, logo, charity number, materials etc. It is recommended that you get this agreement in writing from the charity.
There are a number of laws relating to fundraising which apply to anyone, even non-charities, for example the need for a license from your local authority to hold a street collection and the regulations around holding raffles and lotteries. Guidance on legal requirements and best practice in fundraising is available on the Institute of Fundraising website.
It is important to understand that fundraising is not a charitable purpose. So if you set up an organisation and its purpose is to fundraise you won’t be able to register it as a charity. If instead you set up a charity with a charitable purpose, fundraising could be the activity it carries out in order to achieve its purpose.
Can I set up a charity and get paid to work there?
A charity is by definition not established for personal gain. This means in practice that its trustees are unpaid, and in principle no paid member of staff can be part of the voluntary management committee/board, although they are expected to attend meetings in order to advise and inform the trustees.
However, some people do set up a charity and are both a paid member of staff and a trustee. However this can lead to a conflict of interest, eg when the management committee discuss staff salaries and pay and conditions, or when there are problems in relation to discipline and grievance procedures. In addition, public confidence could be affected if trustees are seen to be making a living from a charity. It is best practice not to pay trustees, and avoids any conflict of interest. In addition some funders will not fund organisations that pay their trustees.
If it is decided that a trustee should also be an employee (and the charity’s constitution allows for this) then appropriate checks and balances should be put in place to ensure that potential conflicts of interest are eliminated or minimized, eg trustees should not be allowed to authorise their own expenses. It is also important to note that Scottish charity law states that less than half of trustees can receive remuneration.
Can I set up a charity to raise funds for a particular person?
No. A charity must always be set up for public benefit. If you want to set up an organisation to benefit a named individual you could consider setting up a non-charitable trust. This could be liable to pay tax even if it is for a ‘good cause’.
SCVO has some general guidance on setting up charitable trusts and some of it would apply to trusts in general but we cannot give detailed legal advice on trust law or tax liability for individuals. It may be useful to use the find a Solicitor facility on the Law Society of Scotland website.
Can we pay the trustees of our charity?
First be clear if you are talking about payments or about reimbursing expenses. Trustees are entitled to be reimbursed any out of pocket expenses incurred in their duties, including travel costs to and from meetings, phone calls and postage incurred as part of their duties.
With regard to a trustee also being a paid employee, it is generally not good practice for a charity to make payments to its trustees unless there are compelling reasons why it is in the best interests of the charity to do so, and the charity has safeguards to manage any conflicts of interest.
If a trustee is the best person to do a specific, one-off, piece of work for the organisation which would in any event be purchased or contracted out, the Charities and Trustee Investment (Scotland) Act 2005 does allow the remuneration of charity trustees where certain conditions are met. These include setting out the maximum amount of the remuneration in a written agreement and ensuring it is reasonable in the circumstances. The charity’s trustees must ensure that it is in the interest of the charity for that person to provide those services for that amount. Less than half of the total number of charity trustees can be directly or indirectly remunerated and the charity’s constitution should not prohibit the remuneration of charity trustees. The Office of the Scottish Charity Regulator (OSCR) has more information on trustee duties.
The issue of payment of voluntary management committee members has been subject to much debate, and it is up to the trustees of an organisation to decide. Some important issues to consider include that HMRC may consider such a situation as employment and payments as earnings and therefore taxable. Also some funders will not fund organisations that pay their management committee members.
An honorarium is a one off payment that is made without expectation or obligation, and is normally a gesture to recognise the activities that have been provided by an individual rather than a payment for services rendered.
If someone is told that they will receive a payment, or if the payment is always made (so the person expects to receive it) it is not an honorarium.
Organisations should take advice before making such a payment. Even if the payment is not subject to tax contributions, it may affect state benefits or an asylum seeker’s application to remain in the UK. It may be unlawful if paid to a member of the governing body and the organisation might not have the power to make the payment.
Registered charities must meet the conditions of remunerating trustees as outlined in legislation, OSCR has guidance on this.
Volunteer Scotland has a useful guide to Volunteer Expenses.
How many trustees do I need?
As trustees, it’s your responsibility to ensure your charity is managed effectively. Your charity’s governing document should set out the minimum and maximum number of trustees your charity needs to have. If it doesn’t, it is good practice for your charity to have at least three trustees, usually consisting of: a chair, secretary and treasurer. There is no upper limit of trustees you can have, but too many could become unmanageable. A SCIO must have at least three charity trustees.
What is the minimum age for a charity trustee?
Under Scottish charity law there is no minimum trustee age, however, you do need to be 16 to enter into a contract. Therefore the safest course, to avoid any possible technical challenge and to ensure that trustees can fully carry out their duties, is to only have trustees age 16 and over. If you are keen to involve young people in the decision-making process, it is possible to elect young people to attend board meetings or participate in sub-committees, but without any voting rights. The same approach could be useful if you work with people with learning difficulties.
Do I need legal advice to help me set up?
No, not unless you want to do something particularly complicated then legal advice might be necessary. Our Setting up a charity guidance can help you set up a charity or voluntary organisation relatively easily, and SCVO members can access our free legal advice service which provides up to 2 hours of free legal advice for SCVO members with an income of less than £500,000.
How long does it take to set up a charity?
The registration of a charity with the Office of the Scottish Charity Regulator (OSCR) is often dependent on your application. So, if you enclose all the information that they need to make a decisions, the process can be fairly quick. OSCR assess the majority of applications within 90 days. Find out more on the OSCR website.
If you are setting up a company Companies House offer a ‘same day’ incorporation service for an increased fee. Find out more on the Companies House website.
Should bodies, as distinct from individuals, be entitled to be members of an organisation?
Although it can become complicated in relation to the legal structure, there are times when it is valuable for bodies to be able to become members of an organisation. Incorporated bodies (SCIO, companies etc) can become members and nominate an individual to vote in the name of the organisation. Unincorporated bodies (voluntary associations and trusts) are not legal entities in their own right but could still send a representative who would become an individual member and vote as an individual.
Should the board have power to veto any application for membership?
Whilst it may seem undemocratic, it can be useful for the board to have the power to approve or reject any application for membership. It gives an important safeguard against any unsuitable person or body joining the organisation with the sole intention of damaging its interests. You should note, however, that certain sources of funding regard this power as being inconsistent with the principle of open membership.
My charity is registered elsewhere but works in Scotland. What do I need to do?
Under the Charities and Trustee Investment (Scotland) Act 2005, bodies which represent themselves as charities in Scotland are required to register with the Office of the Scottish Charity Regulator. This includes bodies which are established and/or registered as charities in other legal jurisdictions, such as England and Wales. There are some exceptions if the organisation is not carrying out a lot of activity in Scotland. Find more information on the OSCR website. .
What is a quorum?
A quorum is the minimum number of voting members needed to take decisions on behalf of the organisation, for both general meetings and committee meetings.
The usual quorum for a committee meeting is a majority (over half) of the trustees; for a general meeting of the members it will be less, for example 1/10 of the membership or 20 members, whichever is the smaller number.
A constitution should state the procedures for a meeting which is inquorate (ie with too few people). One option is to adjourn the meeting until the same time the following week, which would be deemed to be quorate regardless of how many people attended. An inquorate committee could be given the power to call a general meeting so that new members could be elected.
A balance has to be struck between ensuring that decisions are not being taken by a very small number of members, but not paralysing the organisation through being unable to take valid decisions because of difficulties in gathering a quorum. The proposed figure for the quorum should be compared against the maximum number of members and trustees, and reviewed against how many people are likely to be members or in office as trustees at any given time, and the likely level of turnout.
Read our helpful step by step blog: Is it time to incorporate your village hall?