An exemption for your charity clients?
Trading. Your charity clients are able to trade on a commercial basis in order to raise funds. There are restrictions on exactly what can be undertaken under charity law - largely these prevent activities being undertaken if they present a risk to the charity’s assets. However, operating a trade is an important way to raise money. But what is the tax position?
Primary purpose. If the trading activities are carried out specifically to fulfil the charity’s objectives, it is referred to as “primary purpose” trading, and is exempt from corporation tax. A good example would be an educational charity charging course fees.
Not primary. If the trading activities do not qualify as primary purpose, for example selling Christmas cards to raise funds, the general rule is that any profits are taxable. However, there is a limited exemption for small-scale trading profits as long as they don’t exceed a requisite limit. The limit depends on the total receipts of the charity in the chargeable period:
| Total receipts from all sources | Requisite limit for trading income |
| < £20,000 | £5,000 |
| £20,000 - £200,000 | 25% of total receipts |
| £200,000+ | £50,000 |
Pro advice. If the charity’s trading receipts are higher than these limits, consider setting up a trading subsidiary. The profits generated can then be gifted to the charity - an allowable cost for the subsidiary (reducing or removing the tax bill), and exempt income for the charitable parent.
HMRC has published guidance on charity trading, including the exemption and use of a subsidiary (see Follow up ).
HMRC guidance: charities and trading
Create your profile to unlock this advice and many more.