Understanding How Political Parties Are Funded in the UK

Political parties play a crucial role in shaping public policy and representing our interests in government. But how are these organisations funded, and what rules are in place to ensure fairness and transparency?

In the UK, political parties are not charities and are regulated by the Electoral Commission, not the Charity Commission. While some larger parties choose to register as companies for operational purposes, all must follow strict legal guidelines on how they raise and report funds. From donation limits and permissible donors to spending caps during elections, party funding is tightly controlled to prevent undue influence and ensure public trust.

This conversation explores how UK political parties are structured, how they raise money, and what limitations they face – alongside a visual guide to help make it all a bit clearer.

Are UK political parties registered as companies?

Yes, many UK political parties are registered as companies, but not all.

Here's how it works:

1. Legal Structure

Political parties can choose different legal structures. The most common are:

  • Unincorporated associations – this is the default and simplest form. Many small or local parties operate this way.
  • Companies (usually companies limited by guarantee) – larger parties often adopt this structure to benefit from legal personality, limited liability, and better governance mechanisms.

For example:

  • The Labour Party is an unincorporated association, but some parts of its structure (like the Labour Party NEC) are incorporated for specific functions.
  • The Conservative Party is registered as a company limited by guarantee under the name Conservative and Unionist Party.
  • The Liberal Democrats are also a company limited by guarantee.

You can find these registrations via Companies House.

2. Why Register as a Company?

Being a company gives a political party:

  • A legal identity, so it can own property and enter contracts
  • Limited liability for officers and members
  • A clear framework for governance and financial accountability

3. Still Must Register with the Electoral Commission

In summary, while some UK political parties, like Reform UK, have opted for corporate structures to achieve specific organisational goals, others, such as the Labour and Conservative parties, continue to operate as unincorporated associations. The choice of legal structure depends on factors like governance preferences, financial considerations, and the desire for legal personality.

Regardless of legal structure, all political parties must be registered with the Electoral Commission to contest elections and receive donations above certain thresholds.

So, being a registered company is optional, but registration with the Electoral Commission is mandatory if the party is active in elections.

Are UK political parties registered as charities?

No, UK political parties are not registered as charities. In fact, they cannot be registered charities because of charity law restrictions.

Charities in the UK must operate for charitable purposes only, such as the advancement of education, relief of poverty, or promotion of health. Crucially, they must be independent of party politics and cannot support or oppose political parties or candidates.

Political parties, by definition, exist to gain power through elections and promote particular political ideologies, which makes them ineligible for charitable status.

Instead, political parties are regulated and registered with the Electoral Commission under laws set out in the Political Parties, Elections and Referendums Act 2000.

Let's delve into how UK political parties and charities are funded and taxed.

Funding of UK Political Parties

Political parties in the UK finance their activities through several avenues:​

  • Donations: A significant portion of funding comes from donations by individuals, companies, trade unions, and other organisations. For instance, between April and June 2024, UK political parties reported receiving £55.5 million in donations and public funds.
  • Membership Fees: Parties collect annual membership fees from their members, contributing to their income.​
  • Public Funding: Some parties receive state funding, such as "Short Money," which supports opposition parties in the House of Commons.​

The Political Parties, Elections and Referendums Act 2000 (PPERA) governs these funding mechanisms, imposing controls on donations and loans, including requirements for transparency and limits on spending during election periods.

Taxation of Political Parties

Political parties are not registered charities and therefore do not benefit from the tax exemptions available to charitable organisations. They are subject to standard taxation rules applicable to other non-charitable entities.​

Funding of UK Charities

Charities in the UK fund their operations through:​

  • Grants: Funding from government bodies, lottery funds, and private foundations. For example, the National Lottery Community Fund distributes funds raised by the National Lottery to support charitable activities.​
  • Donations: Contributions from individuals, corporations, and philanthropic entities.​
  • Trading Income: Revenue from selling goods and services related to their charitable objectives.​

Taxation of Charities

Registered charities benefit from several tax advantages:​

  • Tax Reliefs: Exemptions from Corporation Tax on profits from charitable activities, relief from business rates, and eligibility to claim Gift Aid on donations, which allows charities to reclaim tax on donations made by UK taxpayers.​
  • VAT Concessions: Certain goods and services purchased by charities may be zero-rated or reduced-rated for VAT purposes.​

These tax benefits are designed to support charities in advancing their charitable purposes and providing public benefit.​

In summary, while both political parties and charities rely on donations and other funding sources, their funding mechanisms, regulatory frameworks, and tax treatments differ significantly due to their distinct roles and purposes within society.

Donation Rules

  1. Who Can Donate? Only permissible donors are allowed. That includes:
    • Individuals on the UK electoral roll
    • UK-registered companies carrying on business in the UK
    • UK-registered trade unions
    • UK-registered political parties
    • UK-registered building societies, LLPs, and friendly societies
    Donations from foreign sources or anonymous donors (above £500) are not allowed.
  2. Minimum Reporting Thresholds:
    • Donations over £500 must come from a permissible donor.
    • Donations over £7,500 (to the central party) must be reported to the Electoral Commission.
    • For local branches or accounting units, the threshold is £1,500.
  3. Loans:Loans above £7,500 must also be from permissible lenders and reported to the Electoral Commission.

Spending Limits

  1. During Elections:
    • National campaign spending limits vary by type of election and are based on the number of constituencies contested.
    • For a UK general election, a party can spend up to £30,000 per seat contested during the regulated period before polling day.
    • For example, a party standing in all 650 seats could spend up to £19.5 million.
  2. Candidate Spending:
    • Separate and much lower limits apply to individual candidates during the short campaign.
    • These are typically between £8,000 and £13,000 depending on constituency and length of the campaign.

Transparency Requirements

  • All reportable donations and loans must be disclosed and published by the Electoral Commission, usually quarterly (or weekly during election periods).
  • Parties must also submit annual accounts if their income or spending exceeds £250,000.

Prohibited Practices

  • Cash Donations Over £500 are not allowed.
  • Foreign Donations are strictly prohibited.
  • Donations in Kind (e.g. services or goods provided for free or below market value) must also be reported if they exceed the threshold.

Why we're talking about this

We support charities and political parties helping fight corruption, pollution and the climate crisis. It's important to understand what you can and can't do, the tools you can and can't use.

This includes building a better grasp on tech stacks, online campaigning and digital strategies.

So we're starting a series of articles on the topic to help out organisations. Do get in touch if you want to have a 1-1 conversation with us about improving your online presence, creating impactful campaigns or making the most of fundraising tools.

We also advise newly formed groups on social and environmental justice on the best kind of legal structure for them. It's not legal advice but based on our experience of working with over 60 different not-for-profit organisations and startups.

📚 Sources Used

1. The Electoral Commission (UK)

2. UK Government & Legislation

3. GOV.UK

4. Companies House‍

  • Source of legal structure and incorporation status for major political parties.

5. Wikipedia (general overviews and source aggregation)