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Pause For Thought - Crowdfunding Campaigns, Compliance and Charity Law

on Tuesday, 18 May 2021.

Crowdfunding has a taken off in recent years as an accessible and widely used method for individuals to donate to cause-based campaigns on a growing number of online platforms.

The simplicity, reach and ease of use of platforms such as Crowdfunder, JustGiving or GoFundMe is enormously appealing. Supporters can make crowdfunding donations to registered charities or to individuals and groups that do not have charitable status.

Non-charitable groups and individuals have had considerable success in the cause-based crowdfunding world in the last decade with the promotion of clear and popular one-off projects. Charities have also, notably, been able to tap into the appeal and success of personal crowdfunding where individuals fundraise for a charity when they undertake a particular challenge or task, for instance running the London Marathon.

Over the last year many charities have had to vary their approach to fundraising in response to the pandemic and the lockdown. For some this has involved making increasing use of crowdfunding.

In many cases this is uncontroversial: registered charities across the UK use online donation platforms to collect donations in support of projects as varied as using trishaws to tackle social isolation or saving a Mountain Zoo. The process is efficient and the major platforms include provision for collecting Gift Aid on the donations made, and documenting the necessary declarations.

Why Could Crowdfunding Cause Problems?

The range of crowdfunding platforms available and the speed with which they can be used can, and does, lead to problems where the crowdfunding campaign is not carefully planned.

We highlight some of those problems below.

Charity Status and Gift Aid

For potential donors motivated by a compelling appeal, it can appear to make little or no difference whether the funds are being raised for a charity or a non-charity. That may change when they realise the implications for Gift Aid. Donations to charities made by eligible UK taxpayers can be increased by 25% using the Gift Aid scheme. This means that a £100 donation could be worth £125 to the charity.

Donations to non-charities cannot be increased through the Gift Aid scheme.

This issue was highlighted when the group of women behind the #ReclaimTheseStreets campaign had to cancel a planned "gathering on Clapham Common centred around a minute of silence to remember Sarah Everard and all women lost to violence" and instead set up "a fundraiser to raise the money we would have been liable for in fines to donate to supporting women's causes around the country instead. … Our goal is £320,000 which is £10,000 for each location where vigils were expected to go ahead".

The crowdfunder was met with an outpouring of generosity and support - and raised well over £500,000. As the amount raised and the profile of the campaign generally increased, questions were raised on social media about how exactly the funds would be applied and whether Gift Aid would be claimed.

On 16 March, the crowdfunder site on JustGiving was updated with an FAQ section designed to address the most common questions, which includes the following:

"One downside of this approach has been that money donated to crowdfunders are not eligible for Gift Aid. If ensuring a charity is able to claim Gift Aid is important to you, please do donate directly to a women’s charity of your choice".

On 19 March 2021, an announcement was posted on the website of Rosa - the UK fund for women and girls saying that Rosa will manage the funds raised and:

"In the coming days, the JustGiving Crowdfunder page will be redirected so that any further donations will be made directly to Rosa – which, as a registered charity, will make those donations eligible for Gift Aid".

The FAQs referred to above also highlight other common risks of crowdfunding.

Coronavirus charities blogs

Transparency

Charities in England and Wales are (almost all) regulated by the Charity Commission. Supporters of a charity can derive confidence and comfort from the Charity Commission's regular oversight of the charity's purposes and activities. Donors can look online at the Charity Commission's Charity Register to verify a charity's registration number, purpose and principal activities and review its annual report setting out its finances. The Charity Register also includes contact information for each charity.

Non-charitable individuals and groups, on the other hand, have no requirement to be overseen by any public or independent body even when engaging in cause-based crowdfunding. Money is donated to the non-charity crowdfunder and there is no clear oversight to be sure that the money donated has been used as the appeal suggested.

It seems clear from the success of crowdfunding that not everyone is concerned about this. People have successfully sought funding for such transparently self-interested purposes as funding 13 dates to 'find love' or making potato salad.

However, even where the initial urge to donate is a whim, many people will want the reassurance of knowing that the funds raised will be applied for the promised purpose - and most will not want to have to go to court to get that reassurance.

This was acknowledged by #ReclaimTheseStreets whose FAQ says: "We will be putting in place transparent and rigorous governance arrangements for the funds raised …"

When Campaigns Don't Go To Plan

When a charity campaign fails to meet or exceeds its fundraising target and this possibility was not addressed in the terms of the appeal, a charity may be able to apply the rules in sections 63 to 66 of the Charities Act 2011 to enable the funds to be applied for other similar charitable purposes. This will usually involve contacting those donors who can be identified and advertising in an effort to trace others - this process can involve a delay of at least three months.

The position for non-charitable campaigns, where these rules do not apply, may be more complex.

These difficulties can be avoided if charities frame the appeal for the general purposes of the charity (for example: "Here is an example of one of our projects. To support this and other projects that we run, please give a donation to our charity.") or include a wider secondary purpose.

The challenges of the pandemic have left many charities launching emergency appeals. We have seen several referring to the purchase of alternative premises. Not all of them have specified what will happen to the funds if the planned property purchase falls through or the price changes.

We have highlighted above just three examples of the problems that can arise where a crowdfunding campaign seeking donations is not carefully planned. There are other potential problems and the situation can be considerably more complex where your crowdfunding project offers the prospect of a financial benefit in return for an investment in your project.

However quick and easy you believe your campaign to be, it is worth pausing for thought and taking the time to plan for the possibility of failure - or a campaign which proves significantly more successful than anticipated.


For specialist legal advice on crowdfunding for your charity, please contact Shivaji Shiva in our Charity Law team on 07788 313298, or please complete the form below.

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