The past year has hit many nonprofit organisations registered in England and Wales particularly hard because of both the COVID-19 pandemic and Brexit. Funding from European sources may have been reduced or withdrawn, and many charities are struggling with a reduction of their own income streams. However, the United Kingdom can still be a productive base from which to administer your charity, and in this article, we look at how that might be done most efficiently.
The United Kingdom ranks seventh on the Charities Aid Foundation World Giving Index 2019, with only Ireland ahead of it in Europe. In 2018, there were more than 168,000 registered charities in England and Wales. Only charities with income over £5,000 are required to register with the Charity Commission, so there are likely many smaller unregistered entities as well.
Upon registering with the Charity Commission, the trustees must declare that the organisation’s funds are held (or will be held) in a bank or building society account in England or Wales. This has not always been an easy step to achieve given that many banks request a charity registration number as part of the account opening process. However, this challenge can normally be overcome with a simple explanation or by using more experienced specialist providers.
Whilst it is possible to run a UK-registered charity from outside the United Kingdom, it is certainly preferable to have a majority of UK-resident trustees. The Charity Commission’s guidance on this issue states that there is usually no objection to the appointment of someone who does not have British nationality or who lives abroad, provided that the individual can act effectively for the purposes of the charity in terms of taking an active part in trustee decision making “and the majority of the trustees live in England and Wales”. The guidance does, however, go on to say that any appointment of a person resident abroad requires careful consideration, particularly where the person may not be amenable to direction by the court or by the Commission, given the limitations of its jurisdiction.
It is also worth remembering that the trustee declaration, completed at the registration stage of the process, requires that the primary address and residency details provided by the trustees are correct, and requires that the trustees will notify the Charity Commission if these details change. The geographic mobility of trustees and employees is, therefore, an important post-Brexit consideration for most charities, particularly where their work is spread across the European Union.
With this in mind, an immediate change for charities to consider is staff travel arrangements to and from the European Union, due to the fact that extra checks are in place. In particular, for longer trips, employees and representatives of the charity will no longer have an automatic right to stay and work indefinitely as UK citizens. Organisations will need to check each Member State’s entry requirements carefully and be aware of any visa application processes.
Funding is, of course, also a primary concern for charities and nonprofit organisations. Whilst sources of EU funding may be withdrawn, the UK-EU Trade and Cooperation Agreement specifies that the United Kingdom and EU Member States must set up a Civil Society Forum. Very few details are available about the forum as yet, but it is anticipated that it will include representatives from across the charity sector and will consider issues such as sustainable development, the economy and human rights.
Data management is also likely to be among issues considered by the forum and will be particularly relevant to charities which distribute marketing materials. However, many organisations already worked frantically in 2018 to ensure that their processes for managing personal data complied with the General Data Protection Regulation, so this should not present a deluge of immediate issues.
Matters that may not be within the remit of the forum, but which will no doubt be of interest to nonprofit organisations, may include the determination of tax reliefs and some of the same developments as are relevant to businesses, including VAT, equality law and employment rights.
Any organisation unsure about post-Brexit changes would be well advised to look at the government’s transition website, which features a Brexit checker tool.
It may also be worth considering whether it would be beneficial to rebase your charity in central Europe and set it up as a foundation. The types of foundation used vary widely depending on the jurisdiction in which a foundation is registered, but similar favourable tax treatment is normally available.
Increasing numbers of UK-based organisations have established an additional or alternative presence in the European Union recently. Doing so has enabled them to retain vital European grant funding and maintain a level of consistency for staff based in Europe.
However, even if a charity’s objects extend further than the United Kingdom, it remains an attractive base from which to operate by offering tax efficiencies such as exemption from VAT, council tax and rates. If the charity comprises a trading company, no corporation tax will be payable when it donates its profits to its parent charity’s main purpose. Further, where individual donors are likely to be resident in the United Kingdom and paying income tax here, the ability to claim Gift Aid means that charities and community amateur sports clubs should be able to claim an extra 25p for every £1 donated, resulting in a significant uplift.
There are various publications available to assist when considering which jurisdiction might best suit your organisation’s requirements. If you would like further advice on any of the issues raised above, please contact your regular McDermott lawyer or one of the authors of this article.