Background to the sector and effective organisations

An attempt to give some context for the rest of VolResource website, and associated projects. First created March 2006.

Voluntary and community organisations – Overview

Voluntary organisations can be confusing for those new to the sector, or newly given responsibility when they have previously been happily working away in the frontline. It can be difficult to know where to start – that’s what we will try to help with here. Your site editor has thirty years of baggage to put to one side first, so this may require some refinement!

Workers, managers, pundits and consultants will often refer to the voluntary sector as if it is clear what we are talking about. A quick look at our Glossary should show that is not necessarily so. Sometimes referred to as making up the third sector, voluntary organisations can be very different to those in the first two, private business and public authorities. But there are in fact few hard boundaries – small local firms can have much in common with community groups employing staff, and national charities will have similar management problems to larger companies. One way of looking at it is as a 2 dimensional continuum (courtesy of OUBS): informal groupings to institutions and bureaucracies, and social goals/public benefit via mutual benefit to private/economic goals. (See organisational management page for some more in this area.)

VolResource works on the basis that housing associations, academic institutes, trade unions and trade or professional bodies are on the edges, for one reason or another. That doesn’t mean that none of what this site covers is relevant, just that they operate in specific contexts (and their own support systems).

Sector trends and issues

Professionalisation, public services

There has been a lot of change in the sector over the last 20 or 30 years. It has grown in its range and numbers, and it is often thought to have increased in professionalism at the expense of passion, innovation and informality. While this may well be true, there are still a lot of community groups, ad-hoc campaigns and new approaches to problems out there. Some may be hidden under new labels, such as ‘social enterprise’, and others not fit government funding priorities so exist on a shoe-string. New regulations around child protection, for instance, can undoubtedly make an impact on how easy it is to set up a youth group but difficulties can be exaggerated and distorted.

Passion, innovation and informality have long been valued by those involved in voluntary groups. But they have both strengths and weaknesses. Poorly thought through ideas, inadequately managed processes or untested facilities can all result in a lot of wasted effort (and resources), and might even make things worse, rather than better. A little time and care before, during and after taking action can avoid many of the pitfalls and should lead to things going forward rather than standing still or going round in circles.

What you need to know

With increasing attention from politicians on what voluntary organisations can deliver, and a higher profile for some charities from recent natural disasters and upcoming new charity law, the ‘operating environment’ is increasingly complex. But most people in most organisations still just need to get on with establishing good practice.

We say ‘good practice’ rather than ‘best practice’ on purpose. The latter is often taken to mean referring to a checklist of policies, set ways of managing meetings or appointing trustees etc, without recognising that every organisation’s circumstances are different. Committee members/trustees with different backgrounds, and even some support organisations, seem to think that management practices they have learnt elsewhere can be applied wholesale. Claiming that your organisation has to start from scratch on everything, because it is unique, is equally a poor approach. VolResource believes that by using some thought, you can learn from commercial businesses, the public sector or other charities, but application by rote is a route to failure.

Find what you want and act on it

If approached in the wrong way the large amount of material on this site could make things worse.

There is an awful lot involved in running a successful organisation or project, whatever its size or complexity. It can be a daunting prospect. You can’t do everything at once, and trying to do too much can end up with nothing done well, and probably much having to be redone (by you or someone else after you’ve burnt out!).

Work out what is important for your particular circumstances. It can help to talk things through with someone from outside, whether from an official support body or not, as an ‘uninvolved’ view may well spot something you have taken for granted, and just by having to communicate what you are trying to do often clarifies the issues.

Don’t forget about the other issues – perhaps people with a particular interest can be found to help with them or come up with a timetable to work through them. Just don’t lose the focus.



Our approach

VolResource attempts to bring together the wealth of information and support that is available for voluntary organisations, but can be difficult to track down, or even to know that it exists. Things have improved since VolResource first appeared, in spring 1999, but there’s still reason enough for us to continue. We don’t claim to be definitive, and instead aim to be a starting point, particularly on ‘what is useful to those relatively new to the sector or a particular aspect of its work’.

By signing up for the email newsletter you can be kept informed of relevant developments on specific sector issues, new advice and regulations in admin and management plus new online resources as we find them – it can take a little while for us to update relevant pages on the VolResource site.

The site can also be used as a database of contacts. See pages marked with the ‘contact list‘ category.

Fundraising has largely been left to one side, as a particular area of expertise which has plenty of coverage elsewhere – see Fundraising resources.

The site will continue to be developed and updated, as useful material is published, the sector changes or new thinking appears. VolResource aims to use developments in internet and other communication technology to further reduce barriers within the sector which has previously kept useful, hard-won knowledge within relatively small circles.

Starting Up

We say it elsewhere: all organisations are different, and the voluntary and community sector is very diverse. We can’t say do this, that and the other and you will be sorted. Hopefully the following will raise the pertinent issues, and point you to the appropriate next steps. Also find out if you have a local CVS (Council of Voluntary Service/Voluntary and Community Action group) or similar – see Local Contacts page.

Why?

  • Are you clear about what the proposed organisation is going to do?
  • Have you checked whether there is somebody already doing this? Are they doing it so differently to how you would want? Would it be better to get involved to a) see if there are good reasons behind this or b) try to persuade them to change their ways?
  • Or is there an organisation which could perhaps develop or add to its work? Setting up and running any organisation takes time and effort that might be better put into the frontline activity.

How?

  • There are many ways of constituting an organisation (establishing a body with formal rules). See our Registration page on charities and limited companies. Consider the various questions posed.
  • Think ahead. It is quite technically and legally complex to change status later on. In the early stages it may make sense to stay as informal as possible, but if things start taking off look into registration issues sooner rather than later, to redue the problems.
  • Take legal advice if you can. This may be available via your local Council of Voluntary Service (CVS), an appropriate umbrella/support body or a law centre. If you can afford to pay, you can try a charity law specialist (see the Legal Services page). However, we have been closely involved with a charity which was was previously very badly advised on constitutional matters by such – they may overcomplicate things.
  • You may technically be required to register as a charity, e.g. if your activities are of a charitable nature and your annual turnover is above £1000 (England & Wales only –  figure, correct 2004, needs updating). However, many don’t and there aren’t significant penalties at present. Funders may also require charity registration.


When?

  • How soon are you likely to hit the need for an annual audit of the accounts? (Check Charity Commission site re charities.)
  • When might you start employing staff, or will the organisation always be volunteer run? When might it end up paying rent on or owning premises? Both of these indicate a need to get limited liability.
  • Take a look at other Management, Admin and Finance pages on VolResource to get a flavour of what issues might need to be thought through in the early stages, and what to come back to later. We have tried to give practical advice relevant to the smaller organisation, and indicate what only concerns larger ones, but there is still a lot here. The start-up period can get bogged down – try to strike a balance so that initial enthusiasm for your cause doesn’t evaporate. A pragmatic, staged, approach is probably best.

What?

  • What expertise do you amongst those already involved, and what do you need to ‘buy in’ somehow? For example, accountancy, management, admin, the particular activity you are undertaking. There may be legal requirements here, depending on your type of activity and type of constitution chosen.
  • What resources are you going to need? Money, premises, equipment, materials.
  • What ways can you get your new organisation noticed where it matters, whether to gain recognition and resources or to influence?

Think

  • For yourselves, but also bounce ideas off others who aren’t so involved. They may see things that you are too close or absorbed to spot. Considered criticism, even when it seems unconstructive, can help separate potential reality from fantasy but can be hard to come by.
  • Don’t get confused by the jargon used, especially as different parts of the sector can have different spins on the same word. See our Glossary.

Do

At some point, you just need to get on with it!

Registration: Charity and/or Company

Limited liability, practicalities and implications of registration

Introduction

It is possible to be both a charity and a limited company, and either or none. There is a whole range of issues which should be considered before you decide what is right for your organisation. It often comes down to the trade off between initial cost and ongoing bureaucracy versus lack of status (with potential donors and suppliers) and open-ended liability.

Scotland and Northern Ireland have different legislation to England and Wales, but with many similarities.

Many of the registration thresholds and costs given below are in need of revision, summer 2007.

Charity Registration

There are a number of advantages to registering as a charity. The main ones are

  • The ability to claim back tax paid by the donor, using such schemes as Gift Aid or payroll giving (GAYE). The value of such schemes will vary with income tax rates. See Tax Reclaim page for more info and contacts.
  • A lot of Charitable Foundations will only give to registered charities.
  • It gives you increased credibility when asking for donations from the public.
  • Automatic entitlement to rates relief (varies between the UK countries).

However, paying tax as an organisation is not so closely connected with registration (unless you are based in Scotland). If you have a constitution which clearly demonstrates the non-profit making nature of your activity, HM Revenue and Customs will (with a bit of persuasion) normally treat any surplus (=’profit’) as not chargeable for Corporation Tax or any other. Bank interest gained and any trading not directly related to your normal activity will usually be exceptions.

The downside of registration is the bureaucracy involved. You need to send regular (usually annual) information to the Charity Commission and conform to particular requirements. Many of these are good practice, and your auditor may want you to follow them anyway. Normally you have to hold Annual General Meetings – see Trustee/Member Issues. The Charity Commission does have very heavy powers if they think you are abusing charitable status.

Not all voluntary organisations can be charities – those which are mainly about campaigning for instance.  On the other hand, organisations meeting the charitable nature test are obliged to register (but see next paragraph) if their turnover is over £1000 a year. This has not been heavily enforced so far.

Some charities are ‘excepted’ from registration, due to annual income of £1,000 or less (unless they have permanent endowment or the use or occupation of land), some religious and armed forces charities, but can register if they wish. There is also a category of exempt charity, which cannot register, and includes many state schools, universities, some industrial and provident societies, and a number of national museums. Update: there were changes around exempt status in the 2006 Charities Act.

Please be aware that every organisation has its own unique circumstances. You may not need to pay for professional advice on the subject, but do think carefully (and remember our site disclaimer).

More information is available through the Charity Commission web site. Phone 0845 300 0218 (this is a central switchboard for all offices), textphone (Minicom) service on 0845 300 0219. There is also a Welsh Office. The website is relatively clear and holds details of registered charities which you can search in various ways, downloadable publications (including most of their important leaflets), roadshows or other advice events, and further contact details.

Scotland, Northern Ireland, Eire, C.I.

The law differs here.

In Scotland, the Office of the Scottish Regulator (OSCR) was fully established in 2006.

Northern Ireland Charity registration in force from December 2013 – see Charity Commission for Northern Ireland (or NICVA governance pages).

English/Welsh charities operating in the Republic of Ireland should now register with a new Charities Regulatory Authority (under the Charities Act 2009).

Channel Islands: At July 2014, Jersey has agreed a new law which will bring in a charity commissioner to determine if charities meet a public benefit test.

Company Registration

Reasons for limited liability

There are a variety of reasons for getting limited liability via registering as a company. It limits the liability of company directors, which usually equates to those on the management committee (who will also be the charity trustees if it is a charity). They are still liable for negligent conduct – lawyers will find some other exceptions but that is the main one. Employing staff, taking up a lease or owning property are common prompts to get limited liability.

Methods

Charitable Incorporated Organisation

A fairly new legal form, the Charitable Incorporated Organisation (CIO) avoids the need to have ‘dual’ registration with the Charity Commission and Companies House (Established in Charities Act 2006 for England and Wales but only came available for use a few years later). Search Charity Commission site for details – at Sep. 2014 the new version has lost the previous CIO FAQs page. There is also a Scottish CIO model.

Limited Company/Society

There is a general lack of knowledge that there are two ways of becoming a registered company (other than the CIO approach) – the ‘normal’ commercial approach of being ‘limited by shares’, and the general model used by voluntary organisations ‘limited by guarantee’, where members guarantee to meet the debts of the company if necessary, but only up to a limit which is almost always £1. Both will require the company to make annual returns, keep various registers and proper accounts which will usually need to be audited professionally. See Accountants or Finance Resources for sources of info. and services.

It is also possible to get limited liability by registering as an Industrial and Provident Society (IPS), which is a fairly normal approach for co-operatives, mutual societies or those businesses conducted for the benefit of the community. Greater protection of original rules (e.g. guarding co-op or community status) and the ability to advertise and issue loan stock to the public are quoted as advantages of IPS. Where the objectives are wholly charitable (e.g. set up for community benefit), the IPS will be an ‘exempt’ charity not required (or allowed) to register with the Charity Commission, although if you arent using accepted model rules (see below) it may be worthwhile getting approval from Inland Revenue before adoption. Many of the largest housing associations are IPS, as are the retail co-op societies. Try Co-operative UK mentioned below. Registration is now via Financial Services Authority (took over from Registry of Friendly Societies and Assistant Registrar for Scotland, Dec 01), 25 The North Colonnade, Canary Wharf, London, E14 5HS, phone 020 7676 9442/9756/5474 (separate office in Scotland?).

Companies House is where all the paperwork gets processed (except for IPS), but it is often easiest to do it via a solicitor, or use one of the specialist services around. Otherwise it can be tricky to make sure that the constitution meets legal requirements (especially if you also want to register as a charity) and gives you the scope to do what is necessary. Their web site is a good place to check out if somebody has already taken ‘your’ name, order a starter pack or essential forms.

Limited Liability Partnerships (introduced in 2000 basically to provide a form of corporate status for accountants, solicitors etc.) might be appropriate for the odd social enterprise.

Community Interest Company

The Community Interest Company (CIC) model, designed for social enterprises, became available July 2005 – two years later it had reached 1,000 registrations. While there is some extra paperwork involved in setting up and running a CIC, the charity team at Russell-Cooke Solicitors point out that funders and other stakeholders may see this as an attractive model as there is no potential for asset stripping, and that (unlike most charities) directors may be paid as long as the remuneration is not excessive. See the CIC Regulator for information, forms etc.

Model constitutions for CICs:

Model constitutions and advice

Various model constitutions are available. This can reduce legal costs – for some you won’t need a lawyer at all, and for IPS (with Registrar of Friendly Societies), model rules can cut the registration fee significantly. There are apparently over twenty IPS promoting bodies providing model Rules already approved by the Registrar – some are below.

Advice and rules

  • Community Trading Services, 8/9 Upper Street, London, N1 0PQ, phone 020 7354 9569. Particularly for community social or recreational bodies (where there might be a club bar, for instance).
  • Co-operatives UK has a Legal Team, Holyoake House, Hanover St, Manchester, M60 0AS, Phone 0161 246 2900, email: legal@cooperatives-uk.coop – for advice on legal structures for co-ops and nfp organisations.
  • Social Enterprise London and Bates Wells and Braithwaite solicitors published in 2003 Keeping it Legal: legal forms for social enterprises.
  • Companies House material has improved but still tends to assume some knowledge. The free, quite basic, Directors and Secretaries Guide (ref GBA1) can be downloaded from their website or up to six can be ordered by phone: 0870 333 3636.


Model rules

  • The Charity Law Association has published three standardised model constitutional documents – one for a charitable company, another for a charitable trust and another for an unincorporated charitable association. All approved by the Charity Commission.
  • ABCUL should be able to provide Credit Union model rules.
  • Community Matters Model Constitution for a Community Association ISBN 0 900878 40 6, £5, also available on disc. See Professional bodies page.
  • Wessex Community Assets “Our Model Rules are for ‘bencoms’ and we use them for asset-locked community-run projects. The micro-hydro schemes that Water Power Enterprises, H2OPE, have sold shares for use our Rules, as have West Oxford Community Renewables.” Contact Sean Wheeldon, Project and Research Worker, for more information.
  • The registration bodies may have some model documents too, or at least advice on them:  Charity Commission (Eng/Wales), Charity Commission N Ireland, Office of the Scottish Charity Regulator.

Implications of registration

Some of these are dealt with above. The following are only the most noteworthy.

  • Annual returns are now a standard requirement, subject to certain exceptions for low or no financial turnover. There is a filing fee for both Companies House (£20) and Registry of Friendly Societies (£240 proposed new rate, June 02).
  • The need for an annual audit of the accounts varies.
    • Under Charities Act 1993, as at 31 Oct 00, gross income threshold for audit is above £250,000, that for the preparation of accruals accounts is above £100,000. Between £10,000 and £250,000, an independent examination can take the place of an audit. See Scrutiny of Smaller Charity Accounts. Figures differ in Scotland.
    • Companies will need an audit of some description whatever their size, even if they havent ‘started trading’ yet.
  • Changing the constitution may require approval if registered with the Charity Commission, and must be done in a legally correct manner whatever.
  • You are obliged to notify changes of registered address – this doesn’t have to be your operating address, but there must be a guaranteed way of getting in touch.
  • A register of trustees, company members etc. must be maintained. While you only inform the Commission of changes in the annual return, Companies House requires notification of new and retired directors within a matter of weeks (failure will only usually be held against you if there are other problems, but why chance it?).
  • There is no requirement to have a company seal (not sure about IPS), but some registration services provide one anyway.