Upon leaving university, most students believe that they will be done with the constant emails from their teachers and requests for money from the university. The sheer amount of money paid can make it confusing for students when they hear that some universities may be charities. However, these donation requests often continue in the form of alumni organisations, and other parts of the university. In this article we will explain how universities use donations such as these, as well as tuition, to run, as well as whether they are considered non-profit organisations.
In the UK, most universities are classed as non-profit organisations. This means that any profit they gain from tuition fees, use of university buildings, events, and donations must be used to further the aims of their business. They are also classed as exempt charities, meaning they pay less tax than other businesses but do not have to be charity commission registered. Their charity status means they have to work towards the public good, which they usually fulfil through community education programmes and scholarships for lower-income students.
While this should have given you a short answer to your question, please read on for full details about universities and their potential charitable status.
What are non-profit universities?
In the UK almost all universities are classified as “non-profit institutions”, with only 3 for-profit institutions remaining. Despite what it may seem, the “non-profit” status does not mean the university cannot make any profit.
Instead, it means that the university uses any profits they make to fund the organisation, including paying staff salaries, giving bursaries, and funding new equipment or buildings. You can find out more information about this on the Penn State World Campus website, if you click here.
Non-profit universities can gain money through tuition fees and donations, as well as private events and hire of their buildings, among other things. The key point is that this money is not “profit” given to shareholders or (technically) to employees, although their salaries come from it and administrative costs.
Instead, it is intended to be used to support the institution’s goals, which in the case of universities is to educate their students. For-profit universities are not subject to these rules and can run in order to make a profit that benefits only their shareholders and owners.
This is rather than the profit going to the students. They also do not receive government fee grants for students, so fees are not capped at the usual amount and may be far more expensive than at non-profit universities.
More details about student loans and fees can be found from Think Student here.
Are universities charities?
All non-profit universities in the UK are classed as charities. They are legally known as “exempt charities”, meaning they do not have to register with the charity commission (the governing body of charities in the UK) but are instead governed by other groups.
More information about ‘exempt charities’ can be found on the government website, if you click here.
For universities, this is the Office for Students (OfS). The OfS’s role is to ensure that they are maintaining charitable practices throughout their business, such as by fairly (but not overly) paying staff for their time.
This is something many universities have come under fire for in the last few years, especially for their vice-chancellors. It also means checking universities are maintaining the initiatives they have claimed they are as part of their status.
Universities’ charitable status means they are also exempt from VAT on their products and services. They are also exempt from corporation tax as they are not registered limited companies under UK law. This exemption applies to all charitable activities, including the education of students.
For more information about tax as a university student please see this helpful Think Student article.
What is classed as a charitable institution?
A charitable institution is loosely defined as an organisation that carries out its activities for the public good. In the UK, they also usually must be registered with the charity commission and pay a certain stipend per year to the commission in exchange for legal representation and assistance.
This is a separate status from their non-profit designation, as it involves their aims being for the greater public good rather than just for the good of a small group.
This can be the case in a non-profit organisation. Most universities qualify for both statuses, especially in the UK where all universities are classed as charitable institutions by default.
Being a charitable institution also means that universities can access grants and funding to help with the day-to-day costs of their charitable activities, as well as special events and fundraisers. It also helps when they are soliciting and receiving donations, as discussed earlier in the example of alumni letters.
You have most likely heard of charities not associated with university, where people volunteer. Volunteering is definitely a useful experience to do whilst your time as a student. Check out this article from Think Student to find out why.