In the UK, both charities and non-profit organisations play vital roles in addressing social, environmental, and cultural issues.
Although they share similarities in their mission-driven nature and reinvestment of surplus revenues, they are distinct in their legal structures, purposes, and regulatory requirements. This blog post explores the differences between charities and non-profit organisations, highlighting their unique characteristics and operational frameworks.
Definition and Purpose
Charity: A charity is a type of non-profit organisation specifically established for public benefit purposes. These purposes can include the relief of poverty, advancement of education, promotion of health, protection of the environment, and other activities that improve society. Charities must be registered with the Charity Commission in England and Wales, the Office of the Scottish Charity Regulator (OSCR), or the Charity Commission for Northern Ireland, depending on where they operate. The primary aim of a charity is to undertake activities that have a positive impact on society.
Non-Profit Organisation: A non-profit organisation (NPO), also known as a not-for-profit organisation, is an entity that operates without the primary goal of generating profit for its owners or shareholders. Instead, any surplus revenues are reinvested into the organisation to further its mission.
Legal Structure and Registration
Charity: Charities must adhere to specific legal requirements and obtain formal recognition from the relevant charity regulator. In England and Wales, charities must register with the Charity Commission if their annual income exceeds £5,000. Registered charities benefit from various tax reliefs and exemptions but must comply with stringent regulatory standards, including annual reporting and governance requirements.
Non-Profit Organisation: Non-profit organisations do not have to be registered with a charity regulator unless they wish to gain charitable status. They can operate under various legal structures, including companies limited by guarantee, community interest companies (CICs), and unincorporated associations. NPOs may be subject to different regulatory requirements depending on their legal form but generally face fewer restrictions compared to registered charities.
Funding and Taxation
Charity: Charities have access to a range of funding sources, including donations, grants, fundraising events, and trading activities. This is one of the reasons that charity accounting is so important. They benefit from several tax advantages, such as exemption from corporation tax on most income and gains, relief from VAT on certain goods and services, and eligibility for Gift Aid, which allows them to claim back tax on donations.
Non-Profit Organisation: Non-profit organisations also rely on various funding sources, including membership fees, grants, donations, and trading activities. However, they do not enjoy the same tax benefits as registered charities unless they achieve charitable status.
Governance and Accountability
Charity: Charities are subject to rigorous governance standards to ensure transparency and accountability. They must have a governing document that outlines their charitable purposes, governance structure, and operational rules. Trustees, who are responsible for the charity’s management, must adhere to strict legal duties and are accountable to the charity regulator and the public.
Non-Profit Organisation: Non-profit organisations have more flexibility in their governance structures, depending on their legal form. They may have a board of directors, committee members, or trustees who oversee the organisation’s activities.