How to Set Up a Charity Fund: Step‑by‑Step Guide

Key Takeaways

• Define the purpose and structure of your fund before you write any legal documents.
• Choose the right legal form - most UK charities start as a charitable trust or a CIO.
• Register with the Charity Commission, set up a bank account, and appoint qualified trustees.
• Take advantage of tax reliefs like Gift Aid to maximise donations.
• Keep clear records and file annual returns to stay compliant.

What is a charity fund?

A charity fund is a pool of money managed for a specific charitable purpose, such as supporting education, health, or community development. It can be set up as a charitable trust, a charitable incorporated organization (CIO), or a company limited by guarantee. The key is that the money is legally separated from the personal assets of the founders and is overseen by trustees who must act in the fund’s best interest.

Step 1 - Clarify Your Mission and Scope

Start with a one‑sentence mission statement. Ask yourself: Who will benefit? What problem am I tackling? How will I measure success? A clear mission guides every later decision, from the trust deed wording to the fundraising approach.

Step 2 - Choose the Right Legal Structure

In England and Wales you have three common options:

If you’re just starting and expect modest income, a Charitable trust is the simplest route.

Step 3 - Draft the Trust Deed (or Governing Document)

The trust deed is the charter of your fund. It must contain:

1. The fund’s name and registered address.
2. A clear description of the charitable purpose.
3. The powers granted to trustees (e.g., invest, hire staff).
4. Procedures for appointing and removing trustees.
5. Rules for handling assets and winding up.

Use plain language, but keep legal phrasing accurate. You can find templates on the Charity Commission website or hire a solicitor for a few hundred pounds.

Step 4 - Appoint Qualified Trustees

Trustees are the people who run the fund. UK law requires at least three trustees, none of whom can be disqualified (e.g., undischarged bankrupts). Ideal trustees bring:

• Financial expertise - helps with budgeting and Gift Aid claims.
• Sector knowledge - ensures the fund stays true to its purpose.
• Network connections - useful for fundraising and partnerships.

Document each trustee’s consent and conflict‑of‑interest declaration in the trustee register.

Step 5 - Register with the Charity Commission

Before you can publicly solicit donations, you must register if you expect an annual income over £5,000. The online application asks for:

• Trust deed (or governing document).
• List of trustees with their personal details.
• Detailed description of your charitable activities.
• Projected income and expenditure for the first year.

Registration usually takes 2‑4 weeks. You’ll receive a charity registration number - keep it handy for bank accounts and tax relief claims.

Step 6 - Open a Dedicated Bank Account

Separate the fund’s money from personal accounts. Most banks require:

• Charity registration number.
• Copy of the trust deed.
• At least two signatories (usually two trustees).

Consider a bank that offers free basic accounts for charities and supports Gift Aid processing.

Step 7 - Set Up Accounting and Reporting

Good record‑keeping protects you from mistakes and keeps the Charity Commission happy. You’ll need:

1. A chart of accounts tailored to charitable activity (e.g., donations, grants, program costs).
2. Quarterly cash‑flow statements.
3. Annual accounts filed with the Charity Commission (and Companies House if you’re a company).

Free accounting software like Wave or low‑cost tools such as QuickBooks for Charities work well for small funds.

Step 8 - Enable Gift Aid and Other Tax Reliefs

Gift Aid boosts UK donors’ contributions by 25% at no extra cost to them. To claim:

• Register for Gift Aid on the Charity Commission portal.
• Collect a signed Gift Aid declaration from each donor.
• Submit quarterly claims with HMRC.

Don’t forget to claim Business Rates relief if you have a physical office, and explore payroll giving for staff contributions.

Step 9 - Launch Fundraising and Communication

Now that the legal foundation is solid, start telling the world about your fund:

• Create a simple website with your mission, trustees, and contact details.
• Use social media to share impact stories - people give to people, not paperwork.
• Apply for grants from local councils or foundations that match your focus area.

Track every donation source in your accounting system; transparency builds trust.

Common Pitfalls and How to Avoid Them

• Vague purpose: The Charity Commission will reject a fund that “helps people.” Be specific - e.g., “provides free tutoring to under‑privileged secondary students in Edinburgh.”
• Insufficient trustees: Three is the minimum. Having a fourth or fifth gives flexibility for vacations or conflicts of interest.
• Mixing personal and charitable funds: Always use the dedicated bank account; even a single personal payment can jeopardise your registration.
• Ignoring annual returns: Late filing leads to fines and can trigger a removal from the register.

Next Steps Checklist

1. Write a concise mission statement.
2. Choose legal form (trust, CIO, or company).
3. Draft and sign the trust deed.
4. Recruit at least three qualified trustees.
5. Register with the Charity Commission and obtain a registration number.
6. Open a dedicated bank account.
7. Set up accounting software and record‑keeping policies.
8. Register for Gift Aid and other tax reliefs.
9. Launch a basic website and start fundraising.
10. File your first annual return within 10 months of the accounting year end.