Trading by charities
Charity law does not normally permit charities to
carry on a trade, except in limited circumstances,
because carrying on a trade conflicts with the social
duties of charities and will inevitably involve a
risk. It is a basic tenet of charity law that trustees
should not place charitable funds at risk. Trading
risks should not be undertaken by a charity simply
to raise money.
This can be a complex area, with a taxation and VAT
effect, and we are always happy to advise trustees,
administrators and other accountants about the pitfalls,
and indeed the opportunities.
We set out below some of the main features relating
to trading by charities, but if further information
is required then please complete our enquiry form.
For the Charity Commission's booklet CC35 - Charities
and Trading, visit : CC35
Charities and trading
Charities are allowed to trade in support of the charity's
primary purpose. Examples are:
- the provision of educational services by a school
in return for course fees;
- provision of residential accommodation by a resident
care charity in return for payment;
- fees charged for admission to exhibitions at a
- fees charged for audiences to attend theatrical
Charities are also allowed to trade where the goods
produced by their beneficiaries are sold, for example
products made by blind persons who are beneficiaries
of a charity for the blind.
Where a charity is carrying out a primary purpose
activity that generates income then there may be some
ancillary income arising from, say, the sale of food
and drink in a restaurant or bar. The raising of funds
in this way will not necessarily be regarded as trading,
but much depends on the circumstances.
Where a charity is given assets to sell, for example
second hand furniture, then the sale of those items
is not in the course of trade.
HM Customs and Revenue do not normally seek to tax
income arising from the sale of donated goods by a
Profits from occasional trading (for example, volunteers
organise bazaars, jumble sales, car boot sales, disco's,
carnivals, firework displays, etc) are not taxable,
so long as the activity is not a regular event and
certain other criteria are met.
Donated goods, like other goods, come within the
scope of VAT but donated goods are zero rated where
sold through charity shops.
Where a charity wishes to raise substantial monies
from trading, these activities have to be carried
on by a subsidiary trading company which is often
wholly owned by the particular charity.
We can advise where trading subsidiaries are suitable
for commercial or taxation reasons, and assist with
the setting up of such companies.
Sometimes charities may sell donated goods together
with non donated goods. Such mixed trading does not
necessarily require a subsidiary trading company to
be formed and the profits may be considered to be
within primary purpose exemption, if the non-primary
purpose part is small in absolute terms, and has a
turnover which is less than 10% of the whole.
An exemption applies to the profits of all trading
activities that are not already exempt from tax.
- the charity's turnover must not exceed £50,000,
- if greater, 25% of the charity's “incoming
resources”, subject to an overall limit of
- the profits must be used for the charity's objects.
Where business premises are used by a charity for
charitable purposes the charity is entitled to 80%
mandatory rate and Council Tax relief. The rating
authority has a discretion as to waiving the remaining
20%. It is important, therefore, to ensure, if maximum
rate relief is to be obtained, that the premises are
only used for charitable purposes and that any non-charitable
activity is carried on through a separate subsidiary
trading company elsewhere.
We are always happy to advise trustees, administrators
and accountants on the strategic and tactical planning
that is necessary to ensure that unwelcome tax bills
do not arise.
As with all our services, our fees are highly competitive.
Our offices are set in a rural location, and therefore
we have low premises overheads. This means that we
are able to offer the highest quality services, very
often at the lowest price.
For further information, please email firstname.lastname@example.org
or complete our Enquiry