Setting up and running a Charity or CIC

Evolving Regulations

The UK charity landscape is undergoing significant transformation in 2026, driven by legislative updates aimed at enhancing transparency and accountability. The Finance Bill 2025-2026, set to take effect from April, revises rules on tainted charity donations, broadening criteria for what constitutes improper financial assistance. This shift could capture more arrangements under scrutiny, affecting how charities structure donor relationships and investments. Approved charitable investments and attributable income rules are also being tightened, with HMRC gaining stronger enforcement powers to prevent abuse of tax reliefs.

Beyond tax, the sector faces a wave of governance reforms. The revised Code of Fundraising Practice, in force since November 2025, emphasizes principles-based standards to protect donors and maintain public trust. A new Charity Governance Code, published in November 2025, pushes for better board practices and risk management. Additionally, the Charities SORP 2026, effective from January, overhauls accounting standards, marking the biggest change in a decade. Financial thresholds for audits and group accounts are rising, potentially easing burdens for smaller entities but requiring adjustments for others.

For Community Interest Companies (CICs), changes are less sweeping but notable. Filing fees increase from February 2026, and from April, CICs must use commercial software for annual accounts submissions to Companies House. These tweaks reflect broader efforts to streamline corporate reporting, but they add administrative costs. Unlike charities, CICs enjoy more operational freedom without the same level of regulatory oversight, making them attractive for social enterprises focused on trading rather than donations.

Real-world impacts are already evident. Charities report surging demand for services amid economic strains, with over half worried about survival due to rising costs. In 2025, the sector's revenue grew to £87.3 billion, but funding shortfalls persist, exacerbated by donor fatigue. Stakeholders like trustees now have expanded powers for ex-gratia payments from November 2025, allowing more flexibility in moral obligations up to £20,000 without Charity Commission approval for larger organizations.

Non-obvious tensions emerge between innovation and compliance. While reforms aim to curb misuse, they may deter smaller groups from forming due to higher barriers. CICs, locked into community benefits with dividend caps, offer a trade-off: easier setup but restricted profit distribution, appealing to entrepreneurs wary of charity bureaucracy. Counterarguments suggest over-regulation could stifle grassroots initiatives, especially as public trust in charities wanes amid scandals. Surprising data shows 58% of new charities registering as Charitable Incorporated Organisations (CIOs) for their liability protections, yet CICs grow rapidly for their hybrid model.