Risks Faced by UK Charities and How Solicitors Can Help

Enhanced public trust, grant access, and tax relief – there are numerous benefits of setting up a charity in the U.K. The charity sector, itself, plays a critical role in society, offering hope and driving social change.

That said, as a charity leader, you are bound to face your fair share of risks. The solution? Prepare for risks and learn to manage them effectively. Only then can you achieve philanthropic goals and safeguard your charity’s funds.

Want to learn risk management for charities? Start by understanding common risks, why they occur, and the measures you can take. Let’s take a closer look!

Funding Shortfalls

Let’s be real – the funding streams for charities are as unpredictable as the British weather. They are heavily reliant on grants, donations, and government funding, which makes them susceptible to economic changes and downturns. Charities face a constant uncertainty when it comes to funding.

Like other organisations, charities are dealing with higher costs for essential expenses. This includes staff wages and energy bills. Operational costs are increasing, but funding isn’t growing as it should be. Existing funds stretch less far, creating gaps and shortfalls. 

Here are some practical solutions charities can adopt to overcome financial distress:

• Adopt robust financial management strategies. This includes creating multiple versions of your budget for both worst-case and best-case scenarios.
• Diversify funding sources. Look into individual donations, corporate sponsorships, investments, and earned income.
• Regularly review all income streams and purchases to ensure correct records.
• Keep a reserve fund to handle unexpected expenses.
• Seek support from charity solicitors.

Increased Legal Obligations

The legal landscape for UK charities is changing. Charities are facing increased scrutiny from the Charity Commission, including higher financial reporting thresholds and stricter governance demands for trustees.

For instance, the Economic Crime and Corporate Transparency Act 2023 (ECCTA) makes larger charities criminally liable for employee fraud. As a result, charities need to ensure robust internal controls and set trustee accountability standards.

Moreover, the Charities Act 2022 gave the UK Commission more powers. They are now heavily focused on compliance and enforcement. Charity organisations are now subject to higher potential penalties for non-compliance.

VAT Compliance Issues

There is a common misconception that charities are completely exempt from Value Added Tax (VAT). In reality, charities are subject to many of the same VAT rules as businesses. The problem? They face numerous VAT compliance issues.

In general, charities must register for VAT if their income from taxable business activities exceeds £90,000 in a 12-month period. As trustees or key financial personnel of charitable organisations, it is your responsibility to understand VAT rules and regulations. Failure to comply will lead to penalties and fines.

Moreover, for non-business activities or exempt activities (as defined by the UK Commission), charities cannot reclaim the VAT they pay on associated purchases and overheads. As a result, they have less money left for core operations.

Lack of Skilled Trustees

According to the National Council for Voluntary Organisations, UK charities are facing a trustee crisis. A lack of skilled trustees prevents charities from reaching their philanthropic goals to the fullest. This issue was reported by more than 43% of all UK charities.

Moreover, charities are facing specific skill gaps. Trustees and volunteers lack skills that are incredibly important for the modern environment. This includes:

• Marketing and communication
• Legal expertise
• Technological gaps
• Lack of people management

Moreover, a lack of diversity and representation limits the range of perspectives and experiences available for better decision-making. Unfortunately, attracting and retaining talent is difficult when a charity is running on a tight budget.

Legal help from experienced charity solicitors can take some burden off your shoulders. They will assess the goals and objectives of your charitable organisation, and suggest strategies for better management.

Internal Governance Disputes

As with any organisation, internal disputes and conflicts are bound to occur. For UK charities, these disputes become a major hindrance to operational success. Disputes often stem from:

• Differences of opinion
• Lack of role clarity
• Poor governance structures
• Poor communication
• Lack of shared goals
• Poor record-keeping

Whatever the reason, resolving conflicts should be the top priority for any charity leader. The following resolution methods can be used:

• Internal resolution processes: This includes creating a detailed governing document, outlining every trustee’s role.
• Mediation: It is a confidential, cost-effective approach in which an impartial person helps parties reach a mutually agreeable solution. The Charity Commission especially recommends mediation before legal action.
• Legal assistance from a charity solicitor: They can advise on disputes between trustees and beneficiaries or with third parties.

Be Sure to Keep Up to Date with Charity Sector Updates…

Risk and challenges are inevitable when it comes to running a charity. But with proper planning and risk management strategies, you can take key steps towards compliance. Mitigating risks is difficult, but not impossible. Seek legal help and make your charitable organisation resilient, responsible, and trusted.

Legal Disclaimer: Please be advised that this article is for informational purposes only and should not be used as a substitute for advice from a trained legal professional. Please seek the advice of a legal professional if you’re facing issues regarding risks faced by UK charities.