Answers to Governance FAQs

1) How do we set up a charity?

In Northern Ireland charitable status (for tax purposes) is granted by HM Revenue and Customs.  The Charity Commission for Northern Ireland will soon be taking on this role when the Register of Charities is officially established.  

Please see Advice Note 1: Charitable Status for details on applying for charitable recognition with HMRC.

NICVA's governance and charity advice service offers a consultancy service to help you coordinate your charitable application, whether you are a long running community group or a small group of people who are seeking to become established.

If you would like help preparing a governing document, a summary of activities or further advice about making a charitable application, please contact cas@nicva.org.  

2) How do we update our governing document? 

NICVA recommends that you review your governing document at least every three to five years to ensure that it remains accurate.

However, if your objects or internal procedures or protocol are likely to change, you will need to make amendments immediately.

Organisations tend to evolve over time as human resources and circumstances change. This can mean that the governing document you adopted at one point in time may no longer accurately describe how your group operates or its remit.

Your governing document can be changed, but it needs to be done very carefully as an amendment can have serious implications. NICVA offers a consultancy service for reviewing your governing document.

If you are planning to do it yourself remember to bear the following in mind.

Consult your existing governing document

Within your existing governing document there should be provision for how it can be change - normally referred to as the amendment or alterations clause. You should follow the provisions in the clause exactly, making sure that you serve proper notice, and record and minute all decisions adequately.

Charitable Status

If you currently have charitable status you will be aware that certain provisions in your governing document are required by charity law. Any alterations to these provisions may have an impact on your charitable eligibility. Charitable organisations need to exercise caution when making alterations to their governing document and should only do so after seeking advice from an expert.

 

3) Can employees sit on a management committee?

There are a couple of rules from charity law that can answer this question.

1. Anyone who sits on a management committee of a charity is a charity trustee.
2. A charity trustee cannot receive any personal benefit from the charity they manage.

So, an employee cannot normally be a management committee member. If it was possible, it might lead to a conflict of interest as the employee would also be his or her own employer.

Employees can be present at management committee meetings but have no voting rights. There are certain discussions that they should not be involved in eg employment strategies or terms and conditions of employment.

The preparation of a good agenda before the meeting can help identify which parts of a meeting staff can be present for, and at which point they may need to leave the discussions.

NICVA can provide a training session for your committee to look at the roles and responsibilities of a charity trustee, how to avoid blurring the line between trustees and employees, and best practice advice for meetings.

For further information

Advice Note 7: Charities Trustees Duties

4) How do I know if a charity is legitimate?

At present the register of charities for Northern Ireland has not been formally established.

Until the Charity Commission for Northern Ireland takes on the role of maintaining the register of charities it is still HM Revenue and Customs that will grant charitable status for tax purposes to groups in Northern Ireland.  The Revenue do not however hold a register for public access. Therefore it is up to charities in Northern Ireland to prove their legitimacy to enquiring members of the public.

Accountability and public confidence within the charitable sector is of the highest priority. Representatives of a charity will normally be able to supply you with sufficient information to prove that their organisation is legitimate. They will be accustomed to providing such information, so do not be too shy to ask!

According to best practice, a collector in the street or at your door should be able to show you:

1. the details of the charity they are collecting for, where it is based and where its beneficiaries are located
2. a collector's identity badge and signed authorisation from the charity they are collecting for
3. a copy of the charity's permit to collect in your town or area, or a copy of the charity's Exemption Order or licence.

If you receive a letter or a flyer from a charity it should contain its charity number and full contact details including an address and phone number.

If you remain unconvinced, or you have more serious doubts as to the legitimacy of a charity, you could ask to see a copy of its HM Revenue and Customs letter. This is the ultimate proof of charitable status, and any charity should be willing to show you a copy on request. Every charity must apply to HM Revenue and Customs for charitable status and will therefore receive a letter that grants that charitable status to them.

If you have a complaint to make about a charity - or a group that may be falsely representing itself as a charity - you can now contact the Charity Commission for Northern Ireland.

Regulators in neighbouring jurisdictions

Charity Commission (England and Wales)

Irish Tax and Customs

Office of the Scottish Charity Regulator

5) Can members of a management committee be paid?

A charity trustee is expected to act without any payment. The law expects that trusteeship of a charity is an entirely voluntary activity motivated by altruism.

Occasionally, the Revenue may allow a clause to be put into a charity's governing document allowing payment to be made to a charity trustee for services rendered to his/her charity (other than trusteeship).

In such circumstances, the charity would have to show that the arrangements were in the interests of the charity, not the individuals concerned, and checks and balances would be put into the governing document to ensure that this power was limited and not open to abuse.

Unless the governing instrument contains an authority for such payments, a trustee engaged by their fellow trustees to supply goods and services to the charity should not make a profit at the expense of the charity. The goods and services should be provided free of charge or at or below cost.

Charity trustees are entitled to be reimbursed for their out of pocket expenses such as postage, stationery, telephone calls and travelling expenses.

NICVA can provide training for your committee to look at the roles and responsibilities of a charity trustee eg how to avoid blurring the lines between trustees and employees, as well as suggesting some best practice advice for meetings and general governance.

For further information

Advice Note 7: Charities Trustees Duties

Charity Commission (England and Wales)

CC11- Payment of Charity Trustees

6) How do we run an AGM?

An Annual General Meeting (AGM) as the name suggests should be held once in every year.

At each AGM, make sure that all voting and other business is done according to whatever rules are contained within the governing document eg nominations, timescales, quorum.  Some organisations may invite people in addition to their members to the AGM. If so, you need to know who your members are to ensure that only those entitled to vote do so.

It is now common practice for charities and other voluntary organisations to rotate the retirement and election of committee members to ensure continuity on the committee.  You may have to change the clause in your governing document to permit this. 

As well as electing new members on to the committee, the business transacted at an AGM includes the presentation and consideration of the annual accounts, balance sheet, directors/trustees report and the report of the auditor or independent examiner. You will also need to appoint the auditor(s) or independent examiner for the period until the next AGM.

Depending on what is contained within your governing document, the election of the office bearers may take place at the AGM or at the first meeting of the committee after the AGM.

If you are incorporated as a company limited by guarantee then you must hold an AGM within 15 months of the previous one (if newly established then within 18 months of incorporation) if required to do so by the articles of association.

Normally you will give your members at least three weeks notice of the AGM. If your organisation is incorporated it is also a legal requirement to circulate details of any resolutions to all members in advance of the meeting.

Please also see Advice Note 5: Running a charitable company

 

7) What are the advantages of becoming a charity?

• Exemption from the payment of tax on most income and gains provided they are applicable and applied for charitable purposes only (income does not include grants, members' subscriptions or donations).
• The right to apply for relief from the payment of rates on premises.
• Eligibility to apply to grantmaking charitable trusts: many grantmaking bodies will give grants only to organisations that are formally recognised as charities.
• Eligibility for some specific VAT relief (see FAQ 9 for further details).
• Eligibility to receive gifts made under tax effective schemes such as Give As You Earn, Cheques for Charity and Gift Aid, and (provided this income is applicable and applied for charitable purposes only) the income tax already paid by a donor who is a tax payer may be recovered.
• Some companies will give discount to charities for goods or services.
• The BBC and UTV will allow only recognised charities to make charitable appeals on radio and television.

Please see Advice Note 1: Charitable Status for further information.

 

8) What are the advantages of becoming a company limited by guarantee?

A company limited by guarantee is a legal entity which exists in its own right in the eyes of the law, separate and distinct from the individuals who are involved in it.

A company is like a person in law. It can sue, or be sued, in its own name, it can enter into contracts, and can own property all in its own name.

The members' liability is normally limited to the amount they have promised to contribute to the company's assets if it is wound up - usually a nominal sum of £1.

If your committee is considering changing to this structure, we strongly recommend that you avail of NICVA's short training session on Setting up a Company Limited by Guarantee.

Please see Advice Note 6: Setting up a Company for further information or contact cas@nicva.org for more information or assistance on drafting the memorandum and articles of association.

 

9) Does a charity have to pay VAT?

It is a popular misconception that charities can benefit from zero rating on all goods and services.  Charitable organisations may be eligible for the relief of VAT on some specific items and services, namely:

• advertising
• fundraising and printed materials
• disability related goods
• equipment for chronically sick and disabled people
• vehicles (adaptation) and medical and scientific equipment
• medicinal products
• drugs and chemicals
• rescue and first aid equipment and
• some building works.

For further detailed information please see HMRC guidance on VAT exemptions relevant to charities or phone a charity VAT advisor on 08453 020203 and choose option 3

 

10) Do volunteers have the same rights as employees?

Volunteers are the lifeblood of many voluntary and community groups, providing invaluable help and support to organisations. However, when organisations have employees, the lines can sometimes become blurred between the roles of volunteers and employees.

Volunteers do not have the same rights as employees, and organisations need to be careful that they do not inadvertently or accidentally misrepresent the nature of the roles that they offer to potential volunteers.

NICVA would recommend that all organisations that work with volunteers should have a Volunteer Policy. A precedent policy is available from Volunteer Now.

The key principles to remember are: 

1. The role of a volunteer is a mutually beneficial role as both parties benefit from the relationship. The organisation gains assistance with its activities and the volunteer gains the opportunity to enjoy new experiences.
2. A volunteer compliments paid staff, and should never substitute or cover their work.
3. Each volunteer should have a written description of the roles and duties that they are responsible for.
4. A volunteer is entitled to claim payment of reasonable out of pocket expenses that they have had to pay whilst volunteering for an organisation.
5. Organisations should check that volunteers are covered by either their public or employer's liability and personal accident insurance.
6. Organisations need to be very intentional about distinguishing between the roles of staff and volunteers.

Volunteer Now is the authority on these matters within Northern Ireland and should be a first point of contact if you have any doubts or queries.

Volunteer Now

129 Ormeau Road
Belfast BT7 1SH
028 9023 6100

info@volunteering-ni.org

 

11) In what ways can a charity trade legally?

Charities are permitted to trade if the trade is in fulfilment of its charitable objects - this is known as primary purpose trading.

Income derived from activities which are undertaken as an integral part of carrying out the primary purpose or work by beneficiaries is known as ancillary trading.

Examples are a bar or cafe open only to people attending the charity's charitable activities or using its charitable services.

Ancillary and Primary Purpose Trading are not subject to income or corporation tax provided that the profits are applied solely for the purposes of the charity.

Small Scale commercial activities are also not subject to tax in the same way, provided that the annual turnover on the non primary purpose trading must not be more than 10% of the total turnover from primary and non primary purpose trading.

If a charity wishes to engage in activities which are outside its objects or in large scale trading activities then it may need to set up a trading subsidiary which can then pass its taxable profits (or a proportion of them) to the charity by way of gift aid.

For further information

HMRC guidance: Trading and business activities

Charity Commission (England and Wales): Trustees, trading and tax

 

12) When will NI have its own Charity Commission?

The Charity Commission for Northern Ireland has now been established however all the provisions of the Charities Act (NI) 2008 are not in place as yet. 

The establishment of the Register has been delayed due to the wording of the Public Benefit Test in the Act.  Please see our Charity Law Reform  page for further information or visit

Charity Commission for Northern Ireland

 

13) What is the difference between the CIC and CIO? 

There are two new legal structures in the community and voluntary sector, the Charitable Incorporated Organisation (CIO) and the Community Interest Company (CIC) and the similarities in the names has caused some confusion.

The CIO whilst provided for in the Charities Act (NI) 2008 will not be available until more detailed requirements are laid out in secondary legislation which has yet to come in.   The CIC on the other hand is available for not for profit organisations which are not charities. 

The main similarities and differences of the two structures are as follows:

1. The CIO will always be charitable, it is designed for organisations with charitable proposes under the legislation that satisfy the public benefit test. The CIC will never be charitable; it was designed for non-charitable, social economy enterprises that want to use their profits and assets for the public good.
2. The CIO will have all the benefits of charitable status in terms of the various tax advantages, the CIC will not be able to take advantage of the tax benefits available to charities as CICs will not be charitable.
3. The CIO will be regulated by the Northern Ireland Charity Commission while the CIC will register with Companies House and be regulated by the UK wide CIC Regulator.
4. Both structures offer a level of protection to trustees from personal liability.
5. The Directors of a CIC can, and typically will be remunerated for their work as directors whereas trustees of a CIO will generally not be remunerated for their work as trustees unless they had specific legal authority for the remuneration.
6. The regulations for CICs were enacted by the Companies (Audit, Investigations and Community Enterprise) Act 2004 while the procedures for setting up the CIO were proposed in the Draft Charities (Northern Ireland) Order. Both of the pieces of legislation allow existing organisations to convert to the new structures.
 
For further information or guidance on the CIC please visit the CIC regulators's website.

See also Advice Note 3: Legal structures for the voluntary and community sector