Guide to charity trading activities and trading subsidiaries. Understand how to generate income while maintaining charitable status.
Many charities generate income through trading activities such as shops, events, or services. However, significant trading can have tax implications and may require a separate trading subsidiary.
The charity tax rules around trading are complex. Small-scale trading directly related to charitable purposes is generally exempt, but larger-scale trading may be taxable.
A trading subsidiary is a separate company owned by the charity that carries out trading activities. This can help manage risk and optimise tax efficiency.
Trading that is primary purpose (directly related to charitable activities) is generally exempt from tax. But check the specific rules for your activities.
Consider a trading subsidiary for significant commercial trading. This limits liability and can be more tax efficient. Set up as a company wholly owned by the charity.
The trading subsidiary can make Gift Aid payments to the charity. This transfers profits to the charity tax-free, increasing the tax efficiency of trading.
Trading subsidiaries need proper governance. Charity trustees should oversee subsidiary activities and ensure appropriate controls are in place.
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