A not for profit organisation in the UK is defined as an entity that exists primarily to serve a social, charitable, or community purpose rather than to generate profits for owners or shareholders. Instead of distributing surpluses, these organisations reinvest any excess income back into their mission, ensuring that resources are directed toward public benefit. This makes them a cornerstone of the UK’s voluntary and community sector, which in 2025 continues to grow in importance as demand for social services and community support rises.
The role of not for profit organisations in UK society
Across the UK, not for profits operate in diverse areas:
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Community development (sports clubs, housing groups, advocacy organisations).
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Health and social care (support services, counselling, health promotion charities).
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Education and training (adult learning centres, youth development programmes).
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Environmental and cultural initiatives (sustainability projects, museums, arts organisations).
These organisations not only provide vital services but also create employment, mobilise volunteers, and foster civic engagement. Their impact extends far beyond financial measures, helping to build stronger, more resilient communities.
Why clarity in definition matters
Many people confuse not for profits with charities, but while all charities are not-for-profits, not all not-for-profits are charities. The distinction lies in registration, governance, and tax obligations. Understanding the definition is crucial for founders, trustees, and managers who want to choose the right legal structure, apply for funding, and ensure compliance with UK regulations.
The importance of compliance and financial management
With regulators such as the Charity Commission, Companies House, and HMRC closely monitoring governance and reporting, not for profits must have strong internal systems. Accurate financial reporting, proper governance, and compliance with tax rules are no longer optional—they are necessary to secure grants, maintain public trust, and avoid penalties.
👉 This is where NGO Finance Hub supports founders and trustees: by providing expert guidance on ngo financial management, ngo finance courses, and training in financial management for NGOs, ensuring that not for profit organisations remain compliant, sustainable, and impactful.
Differences Between Not for Profit and Charity in the UK
One of the most common questions people ask is: how does a not for profit organisation differ from a charity? While both operate to deliver public benefit rather than private profit, the two are not identical. Understanding the difference is vital when choosing the right structure for your organisation.
Charity vs Not for Profit Organisation
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Charities are a specific type of not for profit that must register with the Charity Commission for England and Wales (or OSCR in Scotland, CCNI in Northern Ireland) if their income exceeds registration thresholds. They are bound by charity law, must exclusively pursue charitable purposes (e.g., poverty relief, education, health), and enjoy generous tax exemptions.
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Not for profit organisations, however, are a broader category. They include charities but also cover entities like community interest companies (CICs), companies limited by guarantee, and unincorporated associations. These may serve social or community purposes but don’t always meet the strict legal definition of charity.
Key Legal Distinctions
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Purpose: Charities must have charitable purposes recognised by law; not for profits may pursue wider social or community objectives.
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Regulation: Charities face stricter governance, reporting, and public accountability requirements. Not for profits outside the charity sector may only report to Companies House or other relevant regulators.
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Tax: Charities are generally exempt from corporation tax, business rates, and VAT on certain goods and services, while not for profits without charitable status may face tax on trading profits.
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Public Perception: Being a charity often strengthens donor trust due to stricter oversight. Not for profits, while still mission-driven, may need to demonstrate transparency in different ways.
Practical Example
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A youth sports club run as an unincorporated association is a not for profit but not necessarily a charity.
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A homelessness support group registered with the Charity Commission is both a charity and a not for profit.
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A CIC providing job training is a not for profit but not a charity, though it delivers public benefit.
Why the Distinction affects
For founders, choosing between registering as a charity or operating as another type of not for profit affects:
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Funding eligibility (some grants are only available to registered charities).
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Tax treatment (eligibility for Gift Aid and tax relief).
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Governance requirements (charity trustees vs company directors).
At NGO Finance Hub, we help new and existing organisations evaluate whether charity registration is right for them or if another not for profit structure better aligns with their mission, risk appetite, and funding strategy.
Legal Structures for Not for Profits in the UK
Choosing the right legal structure for a not for profit organisation is one of the most important steps for founders. The structure you select determines governance, reporting obligations, liability, and eligibility for funding or tax relief.
Companies Limited by Guarantee
A company limited by guarantee (CLG) is one of the most common structures for not for profits in the UK.
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It has no shareholders and instead has members who act as guarantors.
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Profits must be reinvested in the organisation’s mission rather than distributed.
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CLGs are registered with Companies House and may also register with the Charity Commission if they meet charitable criteria.
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This structure offers limited liability for members, protecting their personal assets.
Community Interest Companies (CICs)
A CIC is designed for organisations that want to operate commercially but ensure profits are locked into community benefit.
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Must pass the community interest test to prove it exists for public benefit.
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Profits can be reinvested or partly distributed, but always under a dividend cap.
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Regulated by the CIC Regulator.
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CICs are popular with social enterprises balancing sustainability with impact.
Unincorporated Associations and Trusts
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Unincorporated associations are informal, flexible groups run by volunteers — common for sports clubs, community groups, and small-scale initiatives. They have no separate legal personality, so members can be personally liable.
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Trusts are governed by trustees who manage assets for specific charitable or public purposes. They are especially useful when the organisation holds property or funds for beneficiaries.
Which Structure is Best?
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Small community projects may start as unincorporated associations.
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Growing organisations with financial risk often register as companies limited by guarantee.
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Social enterprises blending trade and mission often choose CIC status.
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Charitable trusts are ideal when the organisation’s focus is on managing assets for beneficiaries.
Key Considerations for Founders
When deciding, ask:
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Do we want the legal protections of incorporation?
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Will we apply for charity status and associated tax reliefs?
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Do we plan to generate trading income?
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Who will regulate us — Charity Commission, Companies House, CIC Regulator?
Governance and Compliance for Not for Profits
Strong governance and compliance are essential for any not for profit organisation in the UK. They ensure transparency, accountability, and trust — all of which are critical for securing funding and sustaining long-term impact.
Role of Trustees and Boards
Most not for profit organisations are overseen by trustees or board members who are legally responsible for the organisation. Their duties include:
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Ensuring the organisation stays true to its mission and governing document.
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Overseeing financial management, budgets, and compliance.
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Managing risk and ensuring appropriate internal controls are in place.
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Making strategic decisions that align with both short-term needs and long-term goals.
Trustees can be held personally liable in some structures (like unincorporated associations), making it important to choose the right legal form.
Compliance with UK Regulations
Compliance depends on the organisation’s structure:
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Charities must register with the Charity Commission (if income exceeds £5,000 or they are a CIO).
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Companies limited by guarantee must file annual returns and accounts with Companies House.
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CICs are regulated by the CIC Regulator and must file annual CIC reports showing community benefit.
Financial Oversight and Reporting
Nonprofits are required to keep accurate financial records and submit annual returns:
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Charities with income over £25,000 must have their accounts independently examined.
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Larger charities (income over £1m or assets over £3.26m) require a full audit.
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Trustees must approve and sign off financial statements.
Policies and Risk Management
To strengthen governance, not for profits should adopt key policies such as:
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Conflicts of interest policy
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Financial controls policy
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Safeguarding policy (if working with children or vulnerable adults)
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Risk management framework to identify and mitigate threats.
The Importance of Transparency
Funders, regulators, and the public expect openness. Clear governance and compliance practices help to:
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Build donor confidence.
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Prevent financial mismanagement.
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Demonstrate professionalism and accountability.
Funding and Grants for Not for Profits
One of the most pressing questions for founders is how to secure funding and grants for not for profits in the UK. While these organisations are mission-driven rather than profit-driven, they still need sustainable income streams to cover operations, staff, and programme delivery.
Common Funding Sources
Not for profits typically rely on a mix of:
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Grants from UK charitable trusts, foundations, and government schemes.
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Donations from individuals, businesses, and community fundraising.
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Trading income, such as membership fees, event ticket sales, or social enterprise activities.
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Contracts and service delivery agreements with local authorities or public bodies.
Diversification is key — relying on one source of income puts organisations at risk.
Applying for Grants in the UK
Successful grant applications require:
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A clear mission and vision statement.
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Well-defined impact measurement tools to show outcomes.
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A robust budget and financial plan aligned with funder expectations.
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Demonstration of strong governance and compliance practices.
Foundations and public funders increasingly want to see transparency in financial reporting and evidence of long-term sustainability.
Social Investment and CIC Funding
Community Interest Companies (CICs) often access social investment loans and blended finance designed to support enterprises with a community purpose. These are different from traditional charity grants but can provide growth capital for projects with income-generating potential.
Fundraising Strategies for Sustainability
Beyond grants, not for profits can:
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Run community fundraising campaigns.
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Build corporate partnerships for sponsorship or CSR programmes.
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Offer membership schemes with tiered benefits.
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Use digital fundraising platforms to expand reach.
The Link Between Finance and Impact
Funding is not only about covering costs — it’s about ensuring that every pound is tied to measurable impact. Donors and regulators expect organisations to demonstrate exactly how funds create community benefit.
At NGO Finance Hub, we help organisations develop funding strategies, grant-ready budgets, and ngo financial management systems that strengthen both credibility and financial resilience.
Tax Status and Obligations for Not for Profits
Understanding the tax status and obligations of a not for profit organisation in the UK is critical for compliance and sustainability. While many not for profits benefit from tax reliefs, exemptions are not automatic — they depend on legal structure, activities, and registration.
Do Not for Profits Pay Tax in the UK?
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Charities registered with the Charity Commission often qualify for significant tax reliefs. These include exemptions from corporation tax on primary purpose trading and charitable donations.
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Community Interest Companies (CICs) and companies limited by guarantee are not automatically tax-exempt. They may be liable for corporation tax on trading profits but can reinvest surpluses into their mission.
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Unincorporated associations and trusts may also face tax obligations unless registered as charities.
Charity Tax Reliefs and Exemptions
Charities can benefit from:
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Gift Aid tax relief UK, which allows charities to claim an extra 25p for every £1 donated by UK taxpayers.
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VAT relief on certain goods and services, such as fundraising events or medical supplies.
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Business rates relief on premises used for charitable purposes.
These reliefs provide significant financial advantages but require careful record-keeping and compliance with HMRC rules.
Tax on Non-Charitable Activities
Not for profits must be cautious when generating income through trading.
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Income that is not linked to the organisation’s charitable objectives (e.g., running a café unrelated to its mission) may be subject to corporation tax.
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HMRC provides guidelines on how much non-charitable trading can occur before tax is triggered.
Annual Returns and Reporting
Most registered charities must submit:
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Annual returns to the Charity Commission.
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Accounts and tax returns (if applicable) to HMRC.
Failure to comply may result in fines, loss of tax exemptions, or reputational damage.
Best Practices for Tax Compliance
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Maintain clear financial records that separate restricted and unrestricted funds.
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Seek professional advice on VAT registration thresholds and implications.
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Ensure Gift Aid claims are supported by valid donor declarations.
At NGO Finance Hub, we support charities and CICs with tax planning, financial management for NGOs training, and compliance support to maximise reliefs while staying aligned with UK law.
Registration with the Charity Commission
For many not for profit organisations in the UK, registering with the Charity Commission is a critical step in gaining formal recognition, unlocking tax reliefs, and building credibility with donors and stakeholders. However, not all not for profits are eligible or required to register, so understanding the rules is essential.
When Must a Not for Profit Register?
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Any organisation in England and Wales with an annual income over £5,000 and charitable purposes must register with the Charity Commission.
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Charitable Incorporated Organisations (CIOs) must register regardless of income.
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Smaller not for profits (under £5,000) can operate informally without registering, but they won’t gain access to the same tax exemptions or credibility benefits.
Key Steps in the Registration Process
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Define your charitable purpose – The Charity Commission requires that your organisation fits within recognised charitable purposes, such as education, health, or community development.
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Prepare your governing document – This includes your constitution, articles of association, or trust deed, clearly outlining objectives and governance rules.
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Choose trustees – Trustees must meet eligibility criteria and accept legal responsibility for the charity’s management.
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Submit an online application – The application requires detailed financial and operational information, including projected income and activities.
Benefits of Registration
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Access to tax exemptions and Gift Aid.
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Increased trust from donors, grant-makers, and the public.
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Legal protection for trustees and members (depending on structure).
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Ability to apply for larger grants restricted to registered charities.
Compliance and Ongoing Reporting
Once registered, charities must:
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File annual returns and accounts with the Charity Commission.
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Keep records of trustee meetings and financial decisions.
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Ensure activities remain consistent with stated charitable objectives.
Non-compliance may result in investigations, fines, or removal from the register.
Frequently Asked Questions (FAQs) About Not for Profit Organisations
What is a not for profit organisation and how is it defined legally in the UK?
A not for profit organisation in the UK is defined as an entity that exists to pursue a social, charitable, or community purpose, rather than generating profits for owners or shareholders. Any surplus income is reinvested into its mission. Legal recognition depends on its structure — for example, companies limited by guarantee, community interest companies (CICs), and charitable incorporated organisations (CIOs) are common.
How does a not for profit differ from a charity?
All charities are not for profits, but not all not for profits are charities. A charity must have exclusively charitable purposes and usually needs to register with the Charity Commission, while not for profits can pursue broader community or social goals without necessarily meeting charity law requirements.
What are the common legal structures available for not for profits in the UK?
The main legal structures include:
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Unincorporated associations (simple, community-led groups).
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Trusts (assets held for charitable purposes).
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Companies limited by guarantee (formal structure with limited liability).
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Community Interest Companies (CICs) (social enterprises with community benefit).
Each comes with different governance, reporting, and liability rules.
What is a company limited by guarantee and why is it popular for not for profits?
A company limited by guarantee is a company without shareholders. Instead, members act as guarantors, committing a small financial guarantee if the organisation is wound up. It’s popular because it offers limited liability, formal recognition, and flexibility — making it ideal for charities, clubs, and community groups.
What are community interest companies (CIC) and how do they operate?
CICs are a type of limited company set up to serve a community purpose. They must pass a “community interest test” and reinvest most of their profits for public benefit. CICs are regulated by the CIC Regulator and are a good option for social enterprises that want more flexibility than traditional charities.
What governance and compliance requirements apply to not for profits?
Governance usually involves trustees or directors who oversee strategy, compliance, and accountability. Requirements vary depending on structure, but may include:
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Filing annual returns and accounts.
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Following Charity Commission or CIC Regulator rules.
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Maintaining transparency with members, donors, and stakeholders.
What sources of funding are available for not for profits?
Funding options include grants from foundations, government contracts, membership fees, donations, and trading income. Many not for profits also explore social investment and fundraising campaigns to diversify revenue.
What are the tax obligations for not for profits in the UK?
Not for profits can benefit from tax exemptions, including Gift Aid, corporation tax relief, and VAT reductions, if they qualify under HMRC rules. However, income from non-charitable trading activities may still be taxable.
How and when should a not for profit register with the Charity Commission?
A not for profit must register if it:
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Has charitable purposes only, and
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Earns over £5,000 annually (or is a CIO regardless of income).
Registration brings credibility, tax advantages, and access to certain grant opportunities, but also requires ongoing compliance with Charity Commission rules.
Building Strong and Compliant Not for Profit Organisations in the UK
A not for profit organisation is more than just a legal entity — it is a vehicle for community change, social impact, and long-term sustainability. Whether you’re considering a company limited by guarantee, a community interest company (CIC), or a charitable trust, understanding the definition, structures, governance, and tax obligations is essential.
By choosing the right structure, drafting strong governing documents, ensuring compliance with Charity Commission or CIC Regulator rules, and developing clear strategies for funding and sustainability, not for profits can thrive while staying true to their mission.
But managing these responsibilities isn’t easy. From financial reporting and tax compliance to governance oversight and fundraising strategies, trustees and managers often need expert guidance to stay compliant and efficient.
At NGO Finance Hub, we specialise in helping charities and not for profits build strong financial foundations. Through our tailored services in ngo financial management, our practical ngo finance course, and our expert-led financial management for NGOs training, we empower organisations to achieve sustainability, compliance, and greater impact.
Take the Next Step
If you’re setting up or managing a not for profit in the UK and want expert support to strengthen your operations, finances, and compliance:
👉 Visit NGO Finance Hub today to explore our training and consultancy services.
👉 Get in touch for tailored guidance to ensure your not for profit meets all its financial and legal obligations.
👉 Equip your trustees and staff with the tools they need to lead with confidence.
Your mission deserves a solid financial strategy. Let’s build it together.
