Background<\/strong><\/p>\nWith regular changes to legislation, reporting requirements and tax developments, trustees may decide to review whether their charity\u2019s legal structure remains fit for purpose. What worked at the outset may not be the best option now.<\/p>\n
Before changing structure, trustees will typically consider questions such as: do we understand our charity\u2019s aims and activities; what level of risk is acceptable; and what resources do we have to remain compliant?<\/p>\n
This article is not legal advice. It is intended to support trustee decision-making by summarising key risks and actions to help manage a controlled transition from a CLG to a CIO.<\/p>\n
\u00a0<\/strong><\/p>\nWhat trustees need to know<\/strong><\/p>\n\n- A CIO is regulated by the Charity Commission and prepares accounts under the Charities SORP (FRS 102). Unlike a CLG, it does not file accounts or confirmation statements at Companies House.<\/li>\n
- For the purposes of this article, \u201cconversion\u201d refers to a practical transition approach: setting up a new CIO and transferring the CLG\u2019s activities, assets and liabilities into it. Note: there is also a separate statutory conversion process for charitable companies, so trustees should confirm which route they intend to follow before planning the steps below.<\/em><\/li>\n
- Conversion usually involves a one\u2011off transition period where both entities operate in parallel, temporarily increasing workload and cost.<\/li>\n
- Contracts, grants, leases, bank accounts and employment arrangements may not transfer automatically (particularly where a new entity is created). Third\u2011party consent is often required.<\/li>\n
- Tax registrations (for example: Gift Aid, PAYE, VAT) may need to be set up or updated for the CIO, depending on the route taken and HMRC requirements.<\/li>\n
- Restricted and designated funds must be protected and clearly tracked through the<\/li>\n
- Trustees should budget for one\u2011off costs (for example, legal work, finance setup and possible dual reporting) but may benefit from a lower ongoing compliance burden once established.<\/li>\n<\/ul>\n
What are the key differences between a CLG and a CIO (trustee perspective)?<\/strong><\/p>\n\u00a0<\/strong>Regulation and filings:<\/u><\/p>\n\n- CLG<\/strong> Is regulated by both the Charity Commission and<\/u> Companies House. It requires dual filings and company law compliance.<\/li>\n
- CIO<\/strong> is regulated by the Charity Commission only. No Companies House accounts or confirmation statements are required.<\/li>\n
- Trustee implication<\/u>:<\/strong> Reduced administrative burden, but company law processes fall away and are replaced by CIO\u2011specific charity law requirements.<\/li>\n<\/ul>\n
Trustees, members and governance:<\/u><\/p>\n
A CIO can be set up as:<\/p>\n
\n- Foundation model: the trustees are the only members.<\/li>\n
- Association model: there is a wider membership, including voting members who are not trustees.<\/li>\n
- Trustee decision:<\/u> Confirm whether trustees wish to retain a wider membership. If not, a foundation CIO can reduce governance complexity.<\/li>\n<\/ul>\n
Liability and contracts:<\/u><\/p>\n\n- Both CLGs and CIOs are incorporated bodies, so trustees generally benefit from limited liability.<\/li>\n
- Trustees of a CIO are charity trustees only, rather than company directors.<\/li>\n
- Key risk:<\/u> Review all contracts, grants, leases, loans and banking arrangements to determine what must be transferred (for example by novation or assignment) and what third-party consents are required to avoid liabilities remaining with the CLG.<\/li>\n<\/ul>\n
\u00a0<\/strong><\/p>\nWhat are the financial reporting and accounting implications?<\/strong><\/p>\n\u00a0<\/strong>Ongoing reporting<\/u><\/p>\n\n- The CIO will continue to prepare:<\/li>\n<\/ul>\n
\n- A trustees\u2019 Annual Report, and<\/li>\n
- Accounts under the Charities SORP (FRS 102).<\/li>\n<\/ol>\n
\n- Accounts are filed with the Charity Commission (normally within 10 months of the financial year end).<\/li>\n
- The financial year end can usually remain the same, but confirm this as part of the transition timetable.<\/li>\n<\/ul>\n
Independent examination\/audit<\/u><\/p>\n\n- The requirement for audit or independent examination is driven by income and asset thresholds, not legal form.<\/li>\n
- Conversion does not automatically change whether an audit or independent examination is required.<\/li>\n<\/ul>\n
Trustee planning points:<\/u><\/p>\n\n- Final CLG accounts will still be required.<\/li>\n
- Engage your examiner\/auditor early to agree the treatment of opening balances, the presentation of comparatives and the disclosures needed to explain the transfer.<\/li>\n<\/ul>\n
Accounting for the transfer:<\/u><\/p>\n\n- Typically the CIO is registered first, then the CLG\u2019s assets, liabilities and activities are transferred across. Trustees must ensure:<\/li>\n<\/ul>\n
\n- clear documentation of what transfers and when,<\/li>\n
- transparent disclosure of the transfer in the first CIO accounts,<\/li>\n
- appropriate handling of comparatives for clarity.<\/li>\n<\/ol>\n
\n- Related party\/connected entity disclosures: during any overlap period the CLG and CIO may be connected, and transactions between them may need disclosure.<\/li>\n<\/ul>\n
Funds and reserves<\/u><\/p>\n\n- Restricted funds must remain restricted after transfer.<\/li>\n
- Designated funds should be reviewed and formally re\u2011designated if required.<\/li>\n
- The reserves policy should be updated to reflect the new legal form, and any short term risks during transition.<\/li>\n<\/ul>\n
Tax, payroll and pensions<\/strong><\/p>\nTax and Gift Aid<\/u><\/p>\n\n- The CIO may need HMRC recognition for tax purposes before it can claim Gift Aid (particularly where a new charity entity is created as part of the transition).<\/li>\n
- Gift Aid declarations and online giving platforms must be updated so claims are made by the CIO.<\/li>\n
- A charity\u2011to\u2011charity transfer can often be structured in a tax\u2011efficient way, but the position depends on what is being transferred (for example, property). Professional advice is usually needed.<\/li>\n<\/ul>\n
Payroll and pensions<\/u><\/p>\n\n- A new PAYE scheme may be required.<\/li>\n
- Staff may transfer under TUPE, depending on how the restructure is implemented (for example, whether there is a \u2018relevant transfer\u2019 under TUPE). Take legal advice.<\/li>\n
- Pension providers should be engaged early to ensure continuity and compliance.<\/li>\n<\/ul>\n
Banking<\/u><\/p>\n\n- The CIO will usually require new bank account(s).<\/li>\n
- A dual\u2011running period is common to manage late income, payroll timing, and final CLG payments.<\/li>\n<\/ul>\n
Grants and contracts (critical risk)<\/u><\/p>\n\n- Many funders and commissioners require prior consent to transfer agreements. Without consent, payments may be delayed or withheld.<\/li>\n
- Trustee action:<\/u> Maintain a clear register of funders, contracts and required consents, and start discussions early.<\/li>\n<\/ul>\n
Transfer of assets, liabilities and commitments<\/strong><\/p>\nTangible assets and leases<\/u><\/p>\n\n- Fixed asset register: ensure it is complete and up to date at the transfer date; agree how assets will be transferred and recorded in the CIO\u2019s accounting records.<\/li>\n
- Leases: landlord consent may be required; consider implications for lease incentives, dilapidations provisions and VAT on rent (where applicable).<\/li>\n<\/ul>\n
\u00a0<\/strong><\/h2>\nLiabilities, provisions and commitments<\/u><\/h2>\n\n- Supplier contracts: identify contracts that must be novated and any termination or penalty risks.<\/li>\n
- Loans and finance arrangements (if any): confirm lender requirements and whether security documentation needs replacement.<\/li>\n
- Provisions: consider holiday pay accrual, dilapidations, redundancy provisions and any ongoing dispute\/claim exposures, and agree how these will transfer and be disclosed.<\/li>\n<\/ul>\n
Winding down the CLG<\/strong>\u00a0<\/strong><\/p>\n\n- Once transfer is complete, trustees should plan for orderly closure (or dormancy) of the CLG:<\/li>\n<\/ul>\n
\n- Final statutory accounts and returns must be filed.<\/li>\n
- All balances should be settled, and bank accounts closed only when safe to do so.<\/li>\n
- Financial records must be retained for statutory periods.<\/li>\n<\/ol>\n
Trustee checklist \u2013 key decisions<\/u><\/p>\n\n- Is a foundation CIO the preferred structure, or do you need a wider membership model?<\/li>\n
- Is there a clear transfer plan for contracts, staff, grants, assets and cash?<\/li>\n
- Can the charity manage a temporary dual-running period?<\/li>\n
- Have all funder, landlord and lender consents been identified?<\/li>\n
- Are the one-off costs and risks acceptable in light of the long-term benefits?<\/li>\n<\/ul>\n
Trustee checklist – actions and recommended further steps<\/u><\/p>\n\n- Finance and reporting plan – agree a target transfer date; confirm year-end; map statutory deadlines for the final CLG accounts\/returns and the first CIO accounts; appoint examiner\/auditor early if needed.<\/li>\n
- Funds and grant conditions – create a schedule of restricted\/designated\/endowment funds; obtain funder consent to transfer where required; document restrictions and ensure ring-fencing in the new finance system.<\/li>\n
- VAT and tax – confirm VAT status and monitor any changes (for example new trading or property arrangements) that could trigger registration; ensure HMRC charity recognition and Gift Aid processes for the CIO are in place.<\/li>\n
- Payroll and pensions – confirm whether a new PAYE scheme is required; coordinate with the payroll provider; engage the pension provider; plan for staff transfer timing and accruals.<\/li>\n
- Banking and cashflow – open CIO bank account(s); prepare a changeover plan for income streams and supplier payments; plan dual-running period and controls.<\/li>\n
- Contracts, leases and suppliers – maintain a novation register (funders, commissioners, landlords, key suppliers); confirm consent requirements and timelines; identify any termination and penalty risks.<\/li>\n
- Assets and liabilities – update the fixed asset register; agree valuations where needed; identify provisions\/contingent liabilities; document what transfers and what remains with the CLG.<\/li>\n
- Closure of CLG – agree the approach (strike off\/solvent liquidation\/retain dormant) with legal advice; ensure final accounts\/returns filed; ensure record retention and access.<\/li>\n<\/ul>\n
\u00a0<\/strong><\/p>\nFor professional advice on charitable structures, or other financial and tax advice, please get in touch with us on (01642)\u00a0 632032 or via info@bainesjewitt.co.uk<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"Kim Liu – charities and not-for-profit senior manager at Baines Jewitt – shares practical tips on the financial and reporting obligations when converting from a Company Limited by Guarantee (CLG) to a Charitable Incorporated Organisation (CIO).<\/p>\n","protected":false},"author":2,"featured_media":7020,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[24,125,131],"tags":[],"_links":{"self":[{"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/posts\/7019"}],"collection":[{"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/comments?post=7019"}],"version-history":[{"count":4,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/posts\/7019\/revisions"}],"predecessor-version":[{"id":7024,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/posts\/7019\/revisions\/7024"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/media\/7020"}],"wp:attachment":[{"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/media?parent=7019"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/categories?post=7019"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/tags?post=7019"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}