A guide for US nonprofits setting up in the UK

There are numerous advantages of being a charity in the UK. Notably, charities enjoy generous tax exemptions, as well as access to the ‘Gift Aid’ scheme, which boosts the value of donations from UK taxpayers.

Additionally, charitable status can unlock a wide range of grants that are only available to registered charities and enhance the organization’s credibility. 

However, there are also some drawbacks. Charities are subject to oversight by a regulator, the Charity Commission, which can increase compliance requirements and the Commission has wide regulatory powers. There are restrictions on certain activities, including in the area of political campaigning and lobbying. Furthermore, charities are required to publish financial statements and other information about their activities, which can lead to increased public scrutiny. 

While most US nonprofits we work with choose to establish a charity, it is also possible to set up a nonprofit entity that is not registered as a charity. This can be the best approach for some organizations. 

The two most common legal structures for nonprofits in the UK are the company limited by guarantee (CLG) and the charitable incorporated organisation (CIO). Both offer limited liability protection to board members, meaning they are not personally liable for the organization's debts, provided they act within the law and fulfil their responsibilities. A CLG can be either charitable or non-charitable, depending on whether its purposes meet the criteria for charitable status under UK law. In contrast, a CIO is only available to charities. 

A non-charitable CLG is registered only with Companies House, the UK’s regulator for companies. A CIO, on the other hand, is registered only with the Charity Commission. A charitable CLG with an income over £5,000 must be registered with both regulators, which can increase administrative and regulatory obligations.

The CLG structure is widely recognized, particularly for organisations operating internationally, but charitable CLGs are subject to dual regulation. In contrast, the CIO was specifically designed for charities and is regulated only by the Charity Commission, making it an attractive option for many. 

Both structures can be suitable, depending on your organization’s mission and operations. It is important to weigh up the benefits and limitations of each to determine the best fit.

Both CLGs and CIOs operate under a two-tier governance structure, consisting of board members (charity trustees/directors) and members. Board members are responsible for the strategic oversight, management, and administration of the organization. Members, while not having a financial interest like shareholders in a for-profit company, hold certain key powers – such as the ability to amend the governing document or appoint and remove board members. One option is for a US nonprofit to become the sole member of a UK entity.

A non-charitable CLG can have any number of directors. However, for a charitable CLG or a CIO, we recommend appointing at least three directors/charity trustees to meet Charity Commission expectations and support good governance – and at least one should be a UK resident.

To register as a charity, your organization must have exclusively charitable purposes and operate for public benefit. UK charity legislation sets out 13 purposes that are capable of being charitable. The Charity Commission provides guidance on meeting the public benefit requirement.

The Charity Commission has a lengthy application form and applicants must provide details about how the charity will operate and any supporting documentation. 

In order to take advantage of the tax benefits available to UK charities, a charity must apply for registration with HM Revenue and Customs. We often recommend consulting with a specialist charity tax advisor to ensure that your charity benefits from the maximum tax reliefs.

If you hope to receive donations from US citizens resident in the UK, it can be beneficial to set up the UK charity with a special structure, so that it can be a ‘dual-qualified’ charity. This enables donors who pay tax in the UK and US to receive tax deductions in both countries. 

A US nonprofit may want to transfer key personnel from the US, or recruit international talent to support their UK operations. In order to do this, a UK Charity must obtain a sponsor licence from the UK Home Office. This licence enables the organization to sponsor non-UK nationals for work visas.

To secure a sponsor licence, a UK charity must demonstrate that it is a genuine, legally operating organisation with robust HR systems in place to manage sponsorship responsibilities effectively. Once granted, the licence allows the UK charity to employ workers either directly or via secondment, depending on the type of licence obtained.