How to Start a Charity in Scotland

  1. Is forming a charity the right way to go?
  2. Will I pass the charity test?
  3. Your Trustees, your Governing Documents
  4. Understanding the challenges
  5. Communications, identity and strategy
  6. Making the application
  7. Charity law and accounting
  8. HMRC
  9. What’s unique about Scottish charities
  10. Objectives, goals and solutions

1. Is forming a charity the right way to go?

If you’re asking this question then you’re either at the stage of formalising something that has until now been an informal community project, or you have a brand new idea for an organisation with a social purpose. It’s important to know that forming a charity is not the only option available to you – and getting this first question right will have long-term consequences for your new venture. Charities must provide public benefit and must pass the charity test, whereas other types of organisation do not. There are plenty of benefits of charitable status – trustworthiness; relief in most cases from corporation tax; business rates and water rates in some cases; Gift Aid. However, there are drawbacks too – depending on how you want to structure your organisation.

One of the key early questions will be around governance and control. You may have come up with the idea and strategy behind this new organisation, but you will likely give up control of it if you form a charity, as control will ultimately rest with the charity trustees. You may therefore also wish to consider a Community Interest Company (‘CIC’) or a normal limited company limited by guarantee formed as a not-for-profit. Each of these entities has different characteristics, and all (including a charity) could be classed as a social enterprise.

We would be very happy to have a free of charge meeting with you to explore these options and help guide you toward the most appropriate structure for your situation.

2. Will I pass the “Charity Test”?

So you’ve decided that a charity is the right model for you. New charities must meet a set of legal requirements before they enter the Scottish Charity Register. The first and most fundamental of these is known as the charity test.

Under the Charities and Trustee Investment (Scotland) Act 2005 you can only become a Charity if you provide public benefit in Scotland or elsewhere, and you have one or more relevant charitable purpose. Under the act, there are 16 specific charitable purposes, ranging from poverty relief and saving lives to animal welfare. You must make sure you pass “the Charity Test” before you continue.

Usually, it will be obvious whether or not your new organisation is likely to pass the test in general. OSCR will be very specific in asking you how to demonstrate precisely how your objectives and activities will provide public benefit and further a charitable purpose. OSCR’s guidance is very helpful and comprehensive on this subject and should be read carefully before you proceed further.

3. Your Trustees

The next thing you will need is a minimum of three Trustees. These are the people who will be ultimately responsible for the running and governance the charity. Particularly in these early stages, they will be very active in establishing the charity’s strategy, identifying funding and building the organisation up from the ground. As the name suggests, these should be people you trust, but it might not be the best idea to just choose three of your closest friends. These trustees are going to have to be business savvy, help point the charity in the right direction and forge ahead through challenging times. So your closest pal might not be the best choice.

Find people with experience in areas you are unsure of or who have been part of a charity’s or company’s board before. Many charities try to find at least one trustee who has skills and experience in certain key areas such as finance, law, HR, or business. It is also important that trustees are committed to your cause and are passionate about what you are doing. 

You may decide you are going to be one of the initial trustees so that you maintain equal control of the charity with the others. This is a good idea except if you also intended to carry out the day to day work of the charity or manage it as a member of staff – if so you will need to leave the governance to the trustees and make sure you choose wisely!

Governing Documents

After you have your trustees you will need to come up with a constitution or governing document. This document will need to explicitly detail what your charity is going to do and how it is going to operate. This includes your charity’s main purpose(s), how you are going to spend your income, how you are going to appoint trustees and the rest of the nitty-gritty details about how the charity will be run. It is at this time that you will also decide on the legal structure of your charity as you now have a further set of options:

  1. Unincorporated charity
  2. Scottish Charitable Incorporated Organisation (SCIO)
  3. Company limited by guarantee with charitable status

The unincorporated charity presents potential risks to the trustees. It has no legal personality and therefore any legal proceedings against the organisation (e.g. unpaid bills) will be brought personally against each of the trustees.

These days, new charity registrations are overwhelmingly in the category of SCIO, as this legal form avoids the need for registration with Companies House (as in option 3) while limiting the liability of the charity’s trustees/members in the event that it is wound up (as not in option 1).

Made using the OSCRs Charity Register:

Burness Paull provided a set of model SCIO constitutions to SCVO and these can be found here. These documents can be modified and tweaked to suit your circumstances, but have been drafted by the charities department of a large law firm and so provide a very solid basis for you to start from. It is usually advisable to have your constitution reviewed by a professional before you submit it to OSCR.

4. Understanding the challenges

We are absolutely not trying to put you off forming a charity here. Scottish charities help build up Scotland’s strong third sector and charitable identity. It is undoubtedly a massive lifeline of many peoples lives. But you must be fully aware of the difficulties and challenges that running a charity will entail. With so many charities in Scotland competing for funding, awareness, airtime and volunteers, it is going to be hard to build a charity up from the ground and get to a point where you’ll be able to help everyone you want.

Charities per 1000 people

Source: SCVO research and statistics

You must be fully aware that starting a charity will be significant work and no small feat, so you must have the dedication and the perseverance from the start. With this in mind, it is always worthwhile researching the particular area of charitable work you want to do. This will help you to ascertain whether there are existing organisations carrying out similar work. Economies of scale may mean two small charities bidding for the same funding will achieve less than one group working together. 

5. Communications, identity and strategy

When you first apply to OSCR to register your charity, you may find that they query your ‘unique-ness’ and the possibility of overlap with existing organisations. OSCR is unlikely to award an organisation charitable status unless they are different enough from charities that already exist. If you find you are too similar to existing charities it is probably best to consider joining with an existing organisation, rather than changing your ethos just to pass this part of the process.

A big part of becoming a successful charity is getting the word out there. The more people who know who you are and understand what you do, the more chance you get of gathering volunteers, donations and extra help. Think about how you will build your presence and make sure your brand goals are perfectly clear. Think about how you can get a bit of free publicity, get working on social media early and make sure you are consistent throughout. If your charity is new, do something spectacular or which has a particularly touching story, look online for a guide to writing Press Releases and contact some local newspapers.

This is an area we see charities struggle with because they lack a well-defined strategy. The individuals working on the creation of your charity will have a crystal clear understanding of your work, and how to make a difference. But this story must be set out in a way that can be shared and communicated easily to those who do not know your history or the nature of your cause. Writing a clear business plan will help you to formalise this in a way that people can understand. The business plan will also include financial projections which will force you to think about where will all the money come from to do your amazing work?

6. Making the application

Once you have your name, trustees, constitution and strategic plan sorted, you are going to have to work with OSCR to apply for charitable status. They have plenty of helpful information on their website to double check everything is in order. They’ll also help you out if you feel stuck on a certain part. As of 1 May 2019, you can no longer apply to become a charity through a paper-based application. You’ll need to:

  1. Login and complete the charity application form
  2. Upload completed and signed Charity Trustee Declaration forms for each proposed charity trustee
  3. Upload a copy of your constitution
  4. Upload a description of your organisation’s proposed activities (the business plan)
  5. Upload a recent statement of accounts (only if you have one, don’t worry if you’re brand new)

If at first, you don’t succeed, you are in good company. The majority of new charity registrations are not accepted at first review. OSCR takes considerable care ensuring that all newly registered charities are well prepared to carry out their work and have all necessary plans in place. Having a rigorous decision-making process helps ensure that only the best, most committed and well thought out applications make it. In doing so, ensure to maintain a high level of public trust in charities.

Source: Scottish Council for Voluntary Organisations


7. Charity law and accounting – be careful!

There are a few assumptions which float around regarding charities and their legal and accounting arrangements. Some of them are not quite as clear as they first seem. Here are a few examples:

1. Charities are exempt from paying corporation tax. Yes, BUT…

Only up to certain thresholds if they carry out trading activities.

2. Charities do not have to file corporation tax returns. Yes….well, no

HMRC may ask you to file a corporation tax return, and usually if they do, you have to. Even if you are totally exempt from paying corporation tax and have no taxable income to report. Thankfully, if you are asked for a return you are usually left alone for a few years after this.

3. Charities don’t pay water rates. Yes and no…

Charities with a licensed bar or Cafe, or those with a turnover in excess of £300,000 will pay water rates.

4. Charities don’t pay tax. No!

Charities pay VAT (if they’re unregistered or partially exempt), employer’s national insurance, insurance premium tax…

Please contact us if any of the above matters may affect your charity.

8. Her Majesty’s Revenue and Customs (HMRC)

One of the benefits of being a charity is certain tax reliefs and ability to recover Gift Aid on donations. With the exception of some important caveats mentioned above, most reliefs are automatic. However, it is worthwhile registering as a charity with HMRC after you gain charitable status from OSCR.

Once you have done this, you will be able to submit Gift Aid claims and file corporation tax returns (should you be requested to). You will even have a second charity registration number – but keep this one private, it doesn’t go on the website…

In order to obtain HMRC recognition you’ll need to be registered with OSCR first, and then create a Government Gateway account which can be done online.

From then on you can make Gift Aid claims online, and recover 25p for every £1 donated to your charity by an eligible individual donor. Remember – Gift Aid admin is a pain if you don’t have it well organised from the point you start receiving eligible donations. Although you can claim up to 4 years back, your Gift Aid arrangements need to be well thought out before you start making claims.

9. What’s unique about Scottish charities?

The main difference between registering in Scotland compared to England and Wales is that you will have to deal with OSCR rather than the Charity Commission which is the regulator for England and Wales, or the Charity Commission for Northern Ireland. However, you may find that if you are establishing or registering a larger entity, you are a cross-border charity. In this case, you need to register in both (or all three!) regulated areas. Take professional advice (and OSCR’s) on this if you believe you will be operating throughout the UK.

One of the most notable differences between the Charity Commission in England and Wales is that charities south of the border do not require an audit until their turnover is in excess of £1M. In Scotland it is £500,000, but we have always been far more careful with money than our English friends.

10. Objectives, goals and solutions

Our final big tip to new start-up charities is to have sensible and achievable objectives and goals. Have these clear throughout your constitution and every meeting you go to. Some objectives will become apparent to you the moment you start. Others will show up when you get the ball rolling. You will often find solutions through plain old hard work and dedication, but don’t let yourself get bogged down. There are a huge number of resources available for charity trustees and particularly those in the early stages of forming a charity. Many of these resources are free of charge or subsidised.

And if you need an accountant, or simply someone to bounce ideas off as you get started, please get in touch.

We prepared this blog to help inform individuals and potential future charity trustees and provide general advice. If you have any queries please contact or give us a phone. We do not claim responsibility for any action taken as a result of the general tips found here.