We believe that church is a family and families often give to each other. However, most churches in the UK are also charities and as such are governed by Charity Law. Now for much of what we do as churches these two concepts overlap each other. Church operating as a family meets the legal requirements of church operating as a charity, but…
There are legitimate times when church wants to act as a family, but in so doing they are not acting in accordance with the legal requirements of a charity. There is no longer an overlap: the church is not acting as a charity and in murky waters.
Regardless of the nature of the charity, all charities can only spend money in pursuit of one of the 13 recognised charitable purposes. Spending money on activities which fall outside these prescribed purposes means that such expenditure is not charitable at all and as such may have serious tax and legal ramifications for the church.
What type of expenditure can cause problems?
- Gifts given in recognition of a celebration (birthday, marriage, etc.)
As family we all love a good birthday party or marriage celebration, and the desire to give gifts is a natural one, but before we can pay for such gifts from the charity we need to be sure that the real purpose of the gift is for the charitable purpose of the church and not to celebrate with friends. Celebrations where for example the primary reason is evangelism may be OK, but a simple straightforward birthday gift is unlikely to be charitable.
- Thank you gifts
Once again it is understandable for churches to want to say thank you to people who have contributed to the running of the church, but doing so with money can introduce serious problems:
- First, there is an issue of fairness: how do you decide who receives a gift and who does not?
- Second, there may be a legal issue if the recipient is also a trustee;
- Third, and particularly where gifts are regular, there is a danger of turning volunteers into employees with all the potential legislation which that brings; and
- Fourth, returning to our central theme, is the gift charitable?
Some gifts are charitable, e.g. making a gift to someone coming to preach at a church service is recognised by both the Charity Commission and HMRC, so long as the amount paid is reasonable, but many gifts are not.
As churches we may be accused of using government subsidy (Gift Aid) to look after our own members, but ignoring those people in the community in greater need. There may be good reason for doing this, and there may be controls and procedures that you can put in place to help, but it does require a well-thought-through policy.
So what can you do?
One solution which we are seeing some churches adopt is to set up a separate fund kept outside of the church charity to pay for the types of family-but-not-charity activities touched on above. Such an independent fund will not form part of the charity accounts, cannot be topped up with money from the charity, and donations to it will not attract Gift Aid; but the fund itself would be of no consequence to either HMRC or the Charity Commission. In essence, it is a group of friends supporting other friends with private gifts from private funds.
There are still issues of accountability, fairness and administration to deal with but holding this type of fund separate from the church charity can allow a church to continue operating as family in circumstances where it is not acting as a charity.
We want churches to be places of strong bonds of love and affection where there are no needy people, but we also want them to be models of good governance. Our briefing paper provides for a more in depth exploration of this area as you seek the best way for your church to move forward.