Advantages and disadvantages of being a charity

Last reviewed: 28 September 2026

If you are considering setting up a new organisation, one of the key decisions is whether charitable status is the right option. While becoming a charity can provide access to tax reliefs, funding opportunities and increased public trust, it also comes with regulatory responsibilities and restrictions.

Before deciding on the most appropriate structure, it is important to understand both the advantages and disadvantages of charitable status.

Advantages of being a charity

Tax reliefs

One of the main benefits of charitable status is access to a range of tax reliefs. Charities do not generally have to pay income tax or corporation tax on certain types of income, capital gains tax, or stamp duty. In addition, gifts made to charities are usually free from inheritance tax.

Business rates relief

Charities can benefit from significant rates relief on buildings used to further their charitable purposes. A charity may pay no more than 20% of normal business rates, and in many cases local authorities can award an additional 20% relief, resulting in up to 100% rates relief.

This can help reduce operating costs and allow more funds to be directed towards the organisation’s charitable objectives.

VAT reliefs in certain circumstances

While charities are not automatically exempt from VAT, special VAT treatment may apply in some situations. Understanding how VAT applies to your organisation is important, as the rules can be complex and depend on the activities being undertaken.

Access to funding opportunities

Many grant-making trusts, public bodies and donors specifically support registered charities. As a result, charities can often find it easier to secure funding than organisations without charitable status.

Gift Aid on donations

Charities can reclaim Gift Aid on many donations received from individual taxpayers, increasing the value of donations at no additional cost to the donor.

Increased public confidence

Being regulated by the Office of the Scottish Charity Regulator (OSCR) in Scotland, or the Charity Commission in England and Wales, can provide reassurance to supporters, funders and beneficiaries that the organisation is operating within a recognised regulatory framework.

Access to guidance and support

Registered charities can access publications, guidance and resources produced by regulators such as OSCR and the Charity Commission, helping trustees understand their legal responsibilities and governance requirements.

Disadvantages of being a charity

Activities must be exclusively charitable

To qualify for charitable status, an organisation must have exclusively charitable purposes. Organisations that carry out both charitable and non-charitable activities may need to cease non-charitable activities or carry them out through a separate non-charitable entity.

Restrictions on trading activities

There are specific rules governing trading by charities. While charities can undertake certain trading activities, trustees must ensure these activities comply with relevant guidance and regulations.

Regulatory compliance

Registered charities are accountable to charity regulators and must meet ongoing legal and reporting obligations. If a charity is structured as a company limited by guarantee, it may also have responsibilities to both the relevant charity regulator and Companies House.

Restrictions on trustee remuneration

Trustees generally cannot receive financial benefits from the charity unless this is specifically authorised. There are also limits on the number of trustees who can be remunerated. These rules are in place to protect the charity’s assets and maintain public trust.

Trustees can, however, be reimbursed for reasonable out-of-pocket expenses incurred while carrying out their duties.

Financial reporting requirements

Charities must comply with charity accounting and reporting requirements. The level of reporting required will depend on the size and nature of the charity, but these obligations can create additional administrative responsibilities for trustees.

Conflicts of interest

Trustees have a duty to avoid situations where personal interests conflict with the interests of the charity. Appropriate governance procedures should be in place to identify and manage potential conflicts.

Limits on political activity

There are restrictions on the extent to which charities can engage in political or campaigning activities. Organisations considering charitable status should understand these limitations before applying.

If it’s not fitting to register as a charity, are there any other options?

Not every organisation will meet the requirements for charitable status or benefit from becoming a charity.

Community Interest Company (CIC)

A Community Interest Company (CIC) may be an alternative option. A CIC cannot be a charity and is generally liable for corporation tax on profits generated. However, CICs can still have a social purpose and may find it easier to access certain funding opportunities than commercial businesses.

CICs are regulated separately and operate with an asset lock, which helps ensure assets and profits continue to be used for community benefit.

Frequently Asked Questions

What are the main benefits of becoming a charity?

The main benefits include access to tax reliefs, business rates relief, Gift Aid, funding opportunities and the credibility that comes from being regulated by a recognised charity regulator.

Do charities pay corporation tax?

Charities do not generally have to pay corporation tax on certain types of income, although the tax treatment depends on the nature of the income and activities undertaken.

Are charities exempt from VAT?

No. A common misconception is that charities are exempt from VAT. While special VAT treatment may be available in some circumstances, charities are not automatically exempt.

Can charity trustees be paid?

Trustees are generally not permitted to receive financial benefits unless authorised under the charity’s governing document or by the relevant regulator. Trustees can usually claim reasonable out-of-pocket expenses.

Can a charity carry out commercial activities?

There are rules governing trading by charities. Certain trading activities are permitted, but organisations must ensure they operate within the relevant regulatory framework.

What happens if an organisation has both charitable and non-charitable activities?

An organisation seeking charitable status may need to stop non-charitable activities or undertake them through a separate non-charitable structure.

Is a Community Interest Company the same as a charity?

No. A CIC is a separate legal structure and cannot be a charity. While both may have social objectives, they are subject to different rules and regulatory requirements

How we can help

Choosing the right structure for your organisation is an important decision. Whether you are considering charitable status, establishing a Community Interest Company, or reviewing your existing governance arrangements, our specialist team can help you understand the implications and identify the most appropriate option for your objectives.

Speak to our charities and third sector specialists to discuss your organisation’s plans and requirements.