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We look at the benefits of establishing a charitable foundation to support your school, the issues to consider, and the process involved.
Independent schools have weathered a number of storms in the recent years. First came the pandemic, forcing schools to invest in new technologies whilst placing pressure on fee structures and the movement of students. Today, the sector is under greater financial pressure and political scrutiny than ever before, with a new Labour Government introducing VAT on private school fees, eliminating business rates relief from April 2025, and increasing employer NI contributions. In response, some schools are considering establishing a foundation to manage risk, diversify income streams, and promote collaboration.
What is a charitable foundation, and why set one up?
A charitable foundation is an independent charity established by a school or schools to carry out particular charitable purposes, typically the advancement of education.
A foundation can be set up to focus on fundraising, support bursaries, or contribute funds to capital projects for a specific school. It can also be established to provide a targeted approach for fundraising for a group of schools.
There are several advantages of having a foundation. First, if anything happens to the school, the foundation is structured separately (and should, therefore, be protected from creditors, which is particularly beneficial in the current climate.) Secondly, the foundation will have a separate board, enabling the appointment of board members with specific interests, skills, and expertise in fundraising, investing, and distributing funds, including those who may not wish to take on the role of a school governor.
Where alumni or other individuals contribute gifts, the foundation may benefit from Gift Aid. Donors might be entitled to certain capital gains tax and inheritance tax reliefs depending on their circumstances and should seek tax advice. Corporate tax deductions may also be available for charitable contributions of cash and stock by companies.
What are some issues to consider?
Careful consideration must be given to the foundation's objects – the charitable purposes for which it was established – including whether they advance education by reference to a named school or schools and/or whether they might advance education more broadly for the public benefit – and for other schools.
Additionally, consider whether the school should make a substantial investment in the foundation or actively engage in fundraising efforts. If you are aiming to generate funds for specific projects, will the school be responsible for raising those funds, or will that fall to the foundation? This decision can affect who manages the funds and determines their allocation.
Schools must also ensure they have measures to resolve any disputes or differences that may arise and to help manage conflicts of interest. Finance and data protection are other risk areas that must also be carefully managed. Schools setting up a charitable foundation need a separate bank account, investment strategy, and data protection policies and procedures.
A note of caution – independent schools have utilised bursary funds to demonstrate that they provide a public benefit. Consequently, the public benefit may be reduced if bursary funding activities are shifted to a foundation. Wrigleys Solicitors LLP can assist in navigating these complexities.
How long will it take to set up?
If you set the foundation up as a charitable trust or a charitable company, it can 'exist' very quickly as a legal structure either by establishing a trust deed or by registering the new charitable company at Companies House. In these cases, you can start to use the foundation almost immediately. It will then need to be registered with the Charity Commission once it has an income of over £5,000. If you choose to establish a CIO instead, it will only come into existence once the Charity Commission registers it and there is no income threshold for registration.
While some charities may be registered within a week, it is likely to take five or more months to obtain registered charitable status, so this needs to be planned for. Once registered with the Charity Commission, the foundation must also be registered with HMRC.
Naming the foundation and appointing trustees
If necessary, the foundation's name can be chosen to demonstrate links with its founding school. However, if the foundation uses a similar name, the school must ensure it has the power to protect the use of its name and its reputation.
If you set up a foundation, it must be sufficiently independent of the school to satisfy the charity law requirement for independence. This means the foundation and school cannot use all the same trustees and governors (although some can be shared).
Otherwise, like any charity, it is important to find individuals with the right interests, skills, and expertise. Appointments should not simply focus on individuals who will best serve the school, as conflicts of interest need to be properly managed. However, a school can still build some simple protections into the foundation's constitution, for example, regarding the appointment and removal of foundation trustees.
What ongoing administration will there be?
The administration will vary depending on the legal structure, the size of the foundation, and the type of activities undertaken. All charities are required to file annual returns with the Charity Commission and provide updates regarding the appointment and retirement of trustees.
Charities established as companies will also encounter additional filing obligations with Companies House. Grant-making foundations may only require trustees to meet two or three times a year. A school can assist in the administration of a foundation, particularly during its initial stages, and might be able to recoup some of its related costs. A service-level agreement between the school and the foundation may be necessary.
This article was first published in Independent School Magazine
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
