Can charities trade? Yes, they can! Trading is a commercial activity however charities can trade and charities of all sizes do. Trading can be for charging fees for courses, entry fee for activities, sale of goods such as items Christmas cards and the operation of cafés. There are restrictions on charity trading though.
Setting up a trading subsidiary is not that simple and there are some traps charities must watch out for. Charity Law in the UK imposes restrictions on the nature and level of trading activity that charities can carry out. Charities need to decide on the purpose of the trade. Is it primary or non-primary purpose trading? The former is carried out to fulfil the charity’s main objectives and the latter is carried out simply to raise funds. For example, a charity that helps with special needs children’s care during school hours has a café which will be treated as primary purpose trading. This is because this activity is complementing the charity’s primary purpose.
The key points to consider when thinking about setting up a trading subsidy
- Governing document – Charity’s constitution allows to do so?
- Investment - Investment at the start and any ongoing.
- Structure – Who are the board members?
- Risk – Safeguarding existing assets of the charity.
- Reporting - How your trading subsidiary will be included in the parent charity.
We can help you and advise on all aspects of tax and trading. Please do not hesitate to contact Suda.Ratnam@Raffingers.co.uk
More information in regards to charity trading can be found on Charity Commission and HM Revenue & Customs.