How Do I Close a Charity Correctly if It Stops Operating

When a charity stops operating trustees must make sure that it closes in a lawful and responsible way. This applies whether the organisation is a small community group, a church, a CIO or a larger registered charity. Closing a charity is known as dissolution or winding up. It is the process of bringing all activity to an orderly end, distributing remaining assets according to the charity’s rules and notifying the correct authorities.

The steps trustees follow depend on the charity’s structure but the principles remain the same. You must protect the charity’s assets, settle any debts, meet reporting obligations and follow the governing document. This article explains each stage clearly. It will help you understand your responsibilities and close your charity in a calm and compliant manner.

Why Charities Close

Charities stop operating for many reasons. Common examples include:

• the original purpose is achieved

• the charity no longer has volunteers or trustees

• funding dries up

• the charity merges with another organisation

• the project is no longer needed

• activities move to a new legal structure such as a CIO

• the organisation cannot continue for operational or financial reasons

Regardless of the reason the closure process must be handled carefully to maintain public trust and comply with charity law.

Step 1: Check What the Governing Document Says

Every charity has a governing document. This might be:

• a constitution

• a trust deed

• articles of association

• a CIO constitution

It usually contains a section on dissolution. This tells you:

• how the decision to close must be made

• who must approve it

• how remaining assets must be distributed

• whether a meeting or vote is required

• whether the Charity Commission must be notified in advance

Trustees must follow this document carefully. It is legally binding.

If the governing document does not contain dissolution instructions trustees follow Charity Commission guidance instead.

Step 2: Make a Formal Trustee Decision

The decision to close the charity must be made formally. This may involve:

• a trustee meeting

• a members’ vote if required

• a written resolution

Trustees must record:

• why the charity is closing

• the date they agreed to dissolve

• how they will manage the closure

• what will happen to assets and liabilities

Meeting minutes must be kept as evidence. This helps in case the Charity Commission asks for records later.

Step 3: Prepare a Closure Plan

A closure plan helps trustees complete tasks in the right order. It should include:

• the date activities will stop

• how staff or volunteers will be informed

• how final costs will be paid

• how assets will be transferred

• what must be filed with regulators

• how long record keeping must continue

A structured plan protects trustees from mistakes and ensures an orderly finish.

Step 4: Stop Charity Activities

Once trustees agree to close the charity you should:

• stop taking donations

• stop signing new contracts

• notify funders that activity is ending

• inform volunteers and beneficiaries

• wind down programmes and services

The charity must not begin new projects or spend funds outside its charitable objects while closing.

Step 5: Settle Debts and Close Financial Obligations

Trustees must ensure the charity pays all outstanding debts before dissolving. This includes:

• payroll

• supplier invoices

• rent or utilities

• HMRC liabilities

• pension contributions

• outstanding grant commitments

If the charity cannot pay its debts trustees must seek professional insolvency advice. You cannot dissolve a charity while it is insolvent.

Once debts are cleared you can cancel:

• standing orders

• direct debits

• insurance policies

• utility accounts

• contracts

• website subscriptions

Make sure all final payments are complete before closing bank accounts.

Step 6: Deal with Remaining Assets Correctly

Charity assets belong to the charity, not the trustees. They must be used only for charitable purposes even when winding up.

Assets include:

• cash in the bank

• equipment

• property

• vehicles

• stock

• intellectual property

Trustees must follow the rules in the governing document. Most state that assets must be passed to another charity with similar purposes.

Cash must be transferred to another charity
Equipment or property must be sold or transferred to a similar charity
You cannot distribute assets to trustees members or volunteers

The Charity Commission takes misuse of assets very seriously so decisions must be documented clearly.

Step 7: Notify Funders Donors and Beneficiaries

Transparency matters. Trustees should inform:

• grant funders

• regular donors

• beneficiaries

• partners

• volunteers

• local authorities if relevant

Some grants require remaining funds to be returned. Others allow funds to be passed to another charity. Check grant agreements carefully.

Step 8: Prepare Final Accounts and Reports

All charities must prepare final accounts even if they are unregistered. This includes:

• receipts and payments or accruals accounts

• a final trustees’ report

• a breakdown of assets and liabilities

• details of asset transfers

• evidence of debt settlement

If your charity is a CIO or registered charity these accounts must be filed with the Charity Commission.

If your charity is a charitable company you must file final accounts with Companies House.

If your charity is a small unregistered charity you must prepare accounts but do not file them unless requested.

Step 9: Notify the Charity Commission

The notification process depends on the structure.

If your charity is a CIO

You must apply formally to be removed from the register. The Charity Commission reviews your final accounts and confirms closure.

If your charity is a registered charity (not a CIO)

You notify the Charity Commission that the charity has closed and provide:

• final accounts

• a final return

• evidence of asset transfer

• trustee minutes confirming closure

Once approved the Charity Commission removes the charity from the register.

If your charity is excepted or unregistered

You do not notify the Commission but you must still follow charity law during closure.

Step 10: Close Bank Accounts and Retain Records

Once all funds are transferred and final accounts are approved you can close the charity’s bank accounts.

Trustees must keep charity records for at least:

• 6 years for financial documents

• 7 years for payroll records

• permanently for governing documents and key decisions

Records must be kept safely in case HMRC or the Charity Commission requests them later.

Closing a Charitable Company (Limited by Guarantee)

If the charity is a charitable company you must follow company law as well as charity law.

You must:

• prepare final company accounts

• clear all debts

• distribute assets correctly

• submit final accounts to Companies House

• file the final confirmation statement

• apply for voluntary strike off

Companies House will remove the company from the register if no objections are raised.

Only then can the company be dissolved.

Closing a CIO

Closing a CIO follows its own process. You must:

• pass a dissolution resolution

• transfer all assets

• prepare final accounts

• submit a dissolution application to the Charity Commission

• wait for approval

CIOs are removed from the register once the Charity Commission is satisfied that all steps have been followed.

Common Mistakes When Closing a Charity

Closing the bank account too early

You must not close the account until all transfers, bills and final payments are completed.

Distributing assets incorrectly

Trustees cannot divide assets among themselves, volunteers or members. Everything must go to a similar charity.

Forgetting final reporting

Even small charities must prepare final accounts and a record of decisions.

Failing to check grant conditions

Funders may reclaim unspent money. Ignoring this can put trustees personally at risk.

Not keeping records

Trustees must retain evidence of the closure process for many years.

Not informing stakeholders

Good practice requires clear communication with donors beneficiaries and partners.

Real World Examples

Example 1: Small community group

A local youth club closes due to lack of volunteers. The group transfers its remaining £2,200 to another youth organisation that runs similar activities. Final accounts are prepared and records are kept for six years.

Example 2: Church closing after low attendance

An independent church closes after falling membership. Its governing document requires assets to be transferred to another Christian charity. The trustees sell equipment and transfer funds. Final accounts are filed with the Charity Commission.

Example 3: CIO merging with a larger charity

A CIO supporting vulnerable families merges into a national charity. Its assets are transferred to the new organisation and the trustees apply to dissolve the CIO.

Example 4: Charitable company

A small charity set up as a company limited by guarantee winds up due to financial pressures. It files final accounts with Companies House then applies for voluntary strike off.

When You Should Seek Professional Help

Trustees should consider getting professional support if:

• the charity owns property

• the charity has staff

• there are significant assets to transfer

• there are complicated grant agreements

• the charity is insolvent or close to insolvency

• accounts are behind or incomplete

• the charity is a charitable company or CIO

An accountant or solicitor can help you avoid errors and meet legal responsibilities.

Conclusion

Closing a charity correctly requires careful planning and strict adherence to charity law. Trustees must follow the governing document, make a formal decision, settle debts, transfer remaining assets to another charity, prepare final accounts and notify the Charity Commission where required. Even small unregistered charities must prepare final accounts and keep records.

Handled responsibly, closure protects trustees, respects donors and preserves public trust. With clear steps, proper documentation and good governance your charity can close smoothly and compliantly.