Charitable Organisations in the UK Problems Hindering Success and Recommendations

Charitable organisations are those whose main goals are philanthropy and social welfare, such as public interest or everyday good-serving educational, religious, or other activities (Reiling, 1958). A charitable organisation’s (and charity’s) legal definition differs depending on the nation and, in some cases, the region of the country. There are differences in regulation, taxation, and how charity legislation affects charitable organisations. Charity organisations are prohibited from using their funds to benefit specific individuals or entities (IRS, 2018). Philanthropic organisations are governed by the law in some nations, like the United Kingdom, to ensure they adhere to strict standards for the general good. Around the world, several philanthropic organisations promote various causes, including those related to poverty, health, education, human rights, and animal welfare. Feeding America, United Way Worldwide, St. Jude Children’s Research Hospital, and other significant philanthropic organisations are just a few. As of 2022, there were roughly 170,383 registered charities in England and Wales, according to Statista (2023). Before the 2008 global recession, which reduced the number of charities by the same amount in just two years, there were almost 10,000 more charities between 2000 and 2007. In England and Wales, the number of charities has increased to levels last seen before the financial crisis in 2011. Commercial groups, other institutions, or individuals typically donate money to charity organisations. The largest 100 UK companies gave over £630 million in total in 2002–2003, an increase of 26% over the previous year. Between 2001 and 2003, the percentage of profits these companies donated to charities more than doubled.

Charity Law in the United Kingdom

England and Wales, Scotland, and Northern Ireland have different charity laws, although the core ideas are the same throughout the U.K. The majority of charities are required to register with the relevant regulator in their jurisdiction. However, many legitimate charities are not listed on a public register due to important exclusions that apply (National Council for Voluntary Organizations, 2023). The Charity Commission for England and Wales and the Office of the Scottish Charity Regulator for Scotland maintain the registers. A list of charities that have finished official registration is kept up to date by the Charity Commission for Northern Ireland. Organisations submitting applications must comply with the legal requirements listed below, file with their regulator, and be subject to inspection or other types of evaluation (Wikipedia, 2023). The King’s School, Canterbury, founded in 597, is the oldest charitable organisation in the U.K.

In England and Wales, Section 1 of the Charities Act 2011 specifies the following definition:

(1) For the law of England and Wales, “charity” means an institution which—

(a) is established for charitable purposes only, and

(b) falls to be subject to the High Court’s control in exercising its jurisdiction concerning charities.

The Charities Act 2011 provides the following list of charitable purposes.

  • the prevention or relief of poverty
  • the advancement of education
  • the advancement of religion
  • the advancement of health or the saving of lives
  • the advancement of citizenship or community development
  • the advancement of the arts, culture, heritage or science
  • the advancement of amateur sport
  • the advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity
  • the advancement of environmental protection or improvement
  • the relief of those in need because of youth, age, ill health, disability, financial hardship or other disadvantages
  • the advancement of animal welfare
  • the promotion of the efficiency of the armed forces of the Crown or the police, fire and rescue services or ambulance services
  • Other purposes are recognised as charitable, and any new philanthropic goals are similar.

A charity must also provide a public benefit (Charity Commission, 2010)

 Many charitable organisations in the U.K. cover various causes and issues.

  • Oxfam – works to fight poverty and injustice around the world
  • Save the Children – focuses on helping children in the U.K. and around the world
  • British Red Cross – provides emergency response and support to people in crisis
  • Cancer Research U.K. – conducts research and raises funds to prevent, diagnose, and treat cancer
  • Macmillan Cancer Support – provides practical, emotional, and financial support to people affected by cancer
  • Shelter – works to combat homelessness and provide affordable housing
  • The Trussell Trust – runs a network of food banks across the U.K.
  • Mind – provides support and advocacy for people experiencing mental health problems
  • Age U.K. – focuses on supporting older people and combatting loneliness and isolation
  • The National Trust – protects and preserves historic sites, buildings, and landscapes in the U.K.

Taxation of Charitable Organisations

Nearly all members of the Development Aid Committee (“DAC”) of the Organisation for Economic Co-operation and Development (“OECD”) have tax incentives to promote domestic philanthropy. These tax benefits, often in the form of a tax deduction or tax credit, may reduce the cost of giving, increasing both the volume and the number of donations to non-profit organisations (Natalie & Renate, 2020). A complicated range of tax reliefs and exemptions are available to charity organisations in the U.K., including charitable trusts. Income tax, capital gains tax, inheritance tax, stamp duty land tax, and value-added tax include reliefs and exemptions (Wikipedia, 2023). These tax breaks have prompted complaints that private schools can utilise their non-profit status to evade taxes rather than because they provide a genuine charitable service.

Problems/Challenges Faced by Charitable Organisations in the U.K.

These organisations in the U.K. have traditionally played a significant part in society, aiding in various social, environmental, and health challenges. Despite their significance, they frequently encounter multiple problems that might jeopardise their sustainability and expansion. This article will review some of the issues that charity organisations in the United Kingdom encounter and how business planning may assist them in overcoming these obstacles.

  1. Cost of operation and living crises

The economic crisis is impacting everyone’s finances, with inflation at 9% and necessities rising. As a result of people struggling to pay for their needs, charities are in greater demand (Smith, 2022). According to Charities Aid Foundation (CAF) research, 71% of charitable organisations are concerned about handling increased demand for their services, and 86% are worried about how the cost of living problem may affect those who depend on their services. Also, since fewer individuals have money to donate, operating expenses for charities are rising while their income is declining. In fact, according to CAF data, between January and April 2022, 4.9 million fewer people are expected to report giving to charities than during the same months in 2019. Smaller charities would likely be the most negatively impacted by the crisis as they are especially vulnerable to declining donations and government financing. (Smith, 2022).

2. Financial Sustainability and Funding Issues 

According to CAF study, charity leaders’ top problem is generating income and achieving financial sustainability. A decrease in government funding is another urgent issue. Grant and government contract money and income from municipal and federal governments have decreased recently (Smith, 2022). The support of the government is essential to many non-profit groups. This support could come in the form of grants, be a component of a matching program, or simply act as a safety net to close the gap when funds are low. Budget cuts at the state and federal levels demonstrate that resources are scarce. Government spending reductions have forced charities to curtail their efforts and discontinue essential programs. Larger charities that depend on government financing will be most affected by the fall in funding (Smith, 2022). But, there is some optimism thanks to the CAF research. The majority of charity executives (81%) are upbeat about the future of their organisations, and this optimism rises as money increases, per the survey. Leaders are less hopeful than the sector as a whole (50% optimistic), and it should come as no surprise that optimism is lowest among small charities with an annual income of less than £1 million.

Reduced financing is one of the most significant problems that non-profit organisations encounter. The U.K. government has been reducing funding for charities. Moreover, donors are growing more cautious in their donations, making it difficult for charities to get the resources they require to carry out their purposes. According to the Charities Aid Foundation (CAF), the COVID-19 epidemic has worsened matters by reducing fundraisers and donations.

3. Volunteer retention

16.3 million people volunteered through a group, club, or organisation in 2020–21, according to the NCVO Civil Society Almanac 2022; nonetheless, levels of formal volunteering considerably decreased between 2019–20 and 2020–21, although this can mainly be attributed to the pandemic (Smith, 2022). Volunteers are essential to third-sector organisations, and charities always struggle to sustain volunteer levels while also striving to attract new volunteers. Non-profit workers are typically very committed to the issues they support and are valuable to the industry. Yet, many organisations’ lack of funding also made it difficult to hire “top talent” because those applicants are frequently snapped up by more lucrative industries with better offers and possibilities.

4. Restricted Space

Another critical issue that these organisations encounter is a capacity shortage. Many organisations are managed entirely by volunteers, which, although beneficial in keeping expenses down, can limit the organisation’s potential to expand and flourish. Charities frequently need help finding experienced volunteers to assist with fundraisers, branding, and long-term planning.

Not running non-profits like a business and ignoring the bottom line Your non-profit could find it difficult to recall that it is still a business with a bottom line that needs to be optimistic, given the emphasis on performance. Non-profits frequently prioritise their social impact goals over their economic objectives, which is good until insufficient revenue covers expenses.

5. Economic Pressures on Individual Giving

Also being affected by inflationary pressures is philanthropic giving. According to data by U.K. Giving, fewer people donated to charities last year, and donation levels were below pre-pandemic levels. Due to tight household budgets, approximately five million people chose not to make a one-time donation in September, exacerbating the situation. The post-Covid recovery has not materialised, according to new data on giving in November and over the holiday season. During the busiest time before Christmas, a vital time for fundraising, almost four million fewer people were giving to charities. This is in addition to the fact that inflation has reduced the actual worth of gifts. By 2024, according to a recent analysis we conducted with Pro Bono Economics, a monthly donation to charity of £20 made in 2017 will only be worth £14.90. Charities will need to develop innovative methods to engage younger supporters while keeping older donors involved in ways that work for them as demographic shift in the U.K. progresses.

6. Increasing Competition

In the U.K., non-profits are also facing greater competition from other organisations. There are currently more than 168,000 registered charities in the United Kingdom, and they all compete against one another for the same pool of resources. As a result, many organisations fail to separate themselves from others and are having difficulty attracting new donations.

7. Risks to Charity Reputation

Charities face serious reputational concerns as well. Specific charities’ activities can influence the industry’s image in general, as there have been a variety of notable controversies in past years that have harmed public faith in charitable organisations. This might make it difficult for organisations to recruit new donors and collaborate with partners and other stakeholders.

8. Public trust

The public’s trust in philanthropic organisations is eroding, and negative media coverage has had a significant detrimental influence. People no longer recognise the significance of charities as a result.

Recommendation

  1. Charity organisations should use the appropriate tools, understand the value of break-even analysis, and ensure their mission never loses sight of their capability or reach. As a result, their personnel and procedures will be more flexible and adaptive, allowing them to respond to changing conditions while still using their available resources. 

What tools are the charities using at present is it effective or no tools at all to enhance productivity due to cost and affordability of tools ?

  1. Charity organisations should invest in their workers and overcome the concern that they would quit or be too expensive. They ought to consider the big picture. Additionally, if it is not possible to invest in new talent, they should support their existing top talent and offer an engaging work environment so that their employees can concentrate on the reason they love what they do and their mission. This will enable them to grow and pursue their undeniable passion. 

Charities may not be able to invest in good workers due to various parameters, as the funding for the next year may not be guaranteed, which in turn means job security cannot be provided to workers in certain situations.

3. Social media is excellent for fundraising and awareness.

Charities should look to diversify their sources of income; first, they should identify all possible sources of income and then choose the most pertinent and practical ones. Do they make the most of their houses and other investments, ask themselves? 

Many charities do not have social media presence and lack the strategic experience to implement a good social media strategy to enhance their brand and raise funding through the public.

  1. A robust business model may help non-profit organisations expand and fulfil their purpose. These are some significant aspects that non-profit organisations should consider incorporating into their marketing strategy:
  2. SWOT analysis: SWOT evaluates a company’s strengths, weaknesses, opportunities, and threats. It is a strategic planning tool that helps organisations, including non-profit organisations, to identify internal and external factors that can impact their success.
  3. A marketing plan is a strategy for publicising and showcasing the business and its services, particularly techniques for appealing to prospective audiences and engaging current supporters.
  4. A fundraising plan is a strategy for producing funds to finance the organisational framework, including methods for acquiring donations, grants, and other sources of financing.
  5. Non-profits could set themselves up for development and success by drafting a thorough business plan incorporating these essential components. It may also assist them in conveying their mission and objectives to stakeholders such as donors, volunteers, and partner organisations.

Also, apart from the issues I have listed above, charity organisations in the United Kingdom confront additional obstacles, such as keeping up with the constantly shifting internet age, increased competitors for funds, and the difficulty of assessing and reporting on impact.

In recent years, the transition to a more online realm has significantly impacted how non-profit organisations operate. Many contributors choose to submit their contributions electronically, and the use of social networks for fundraising and awareness initiatives is becoming increasingly common. On the other hand, smaller firms may have trouble keeping up with these developments because of a lack of money, knowledge, or access to technology. To stay up with the changing landscape, charities must invest in technology, establish strategies for digital advertising, and upskill their employees.

Conclusion: –

To summarise, non-profits in the United Kingdom encounter several problems that might influence their development and viability. Among the obstacles are less money, limited capacity, reputational hazards, keeping up with digital advances, competitive pressure for funding, and assessing and disclosing effects. Charities may overcome these hurdles and set themselves up for success by building a good business strategy that includes a mission and vision statement, SWOT analysis, marketing strategy, fundraising plan, financial plan, and risk management plan. As a result, they will continue to benefit society and fulfil their goals of assisting people in need.

References

“Charities Act 2011”. legislation.gov.uk

Charities Act (2009) (Establishment Day) Order 2014″. Statutory Instrument No. 456 of 2014Minister for Justice and Equality.

Internal Revenue Service (2018). Exemption Requirement – 501(c)(3) organizations

National Council for Voluntary Organisation (2023)Understanding charity status and registration”.  Registering with the Charity Commission. Retrieved 22 February 2023.

Relining, H.T. (1958). Federal Taxation: What Is a Charitable Organization?. American Bar Association Journal. 44 (6), 525–598.

Smith, J. (2022). Challenges facing the third sector, Prospects, Challenges facing the third sector | Prospects.ac.uk retrieved31/03/2023

Statista (2023). Charities in the UK- Statistics & Facts. Charities in the UK – Statistics & Facts | Statista Accessed 31st/03/2023

Wikipedia (2023). Charitable Organizations. Charitable organization – Wikipedia Natalie, S. & Renate, R. (2020). Tax Incentives for Cross-Border Giving in an Era of Philanthropic Globalization: A Comparative Perspective. Google Scholar.

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