K. Charities and trading
If you are a charity you need to know when you can and can’t trade and what the tax implications of trading are. The following is a VERY brief summary but you should look at the detailed guidance
- Charities can trade within limits.
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Trading income is exempt from tax if it meets their 'primary purpose' (i.e. it relates to the charity’s aims such a charity selling care services whose aim is to provide care), is ancillary (e.g. selling refreshments), is beneficiary trading (e.g. users making goods for therapeutic purposes and selling) or it is small scale (defined by Charity Commission) to raise funds.
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There are specific activities that are also treated as non-trading for charities including the sale of donated goods and income from letting buildings or land.
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Non-primary purpose trading must not put the charity at financial risk.
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If non-primary purpose trading is significant then you should set up a trading arm - a separate organisation to trade that can give all profits to the charity.
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Charities cannot have ‘trading' per se as an object of the charity.
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A Charity wishing to enter into any form of trading activity must have power to do so in its governing documents.
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For more information see the Charity Commission's and HMRC’s guidance.
Links and Tools - General on trading and tax | |
Trustees, trading and tax A guide explaining when charities may engage in trading activities and when a trading company may be used.(Charity Commission) | |
‘Trading and business activities’ This includes guidance on what constitutes trading for direct tax and VAT purposes. (HMRC Her Majesty's Revenue & Customs) |
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Charities trading and the law’ Comprehensive book on charities and trading. (Stephen Lloyd and Alice Faure Walker 2009) |
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Links and Tools - Company and trading arm structures | |
‘Setting up a company to replace an existing charity’ For unincorporated charities who want to set up as a company limited by guarantee to limit liability and risks.(Charity Commission) |
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‘Using a trading company’ Answers some questions around tax and trading companies. (HMRC) |
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‘Introductory Pack on Funding and Finance Guide to Trading’ Checklist and information on ‘When to consider setting up a charity subsidiary’ Page 22 (page 33 on electronic version). (Finance Hub) |
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Case studies | |
Community Enterprise Derby | |
High Peak CVS - Digital Umbrella | |
Unique Social Enterprise |
Key | |||
Basic | Intermediate | ||
Advanced | Book | ||
Website or download | Worksheet | ||
Information/guide alone | Training |