Trading is the selling of goods or services in exchange for payment.Charities are allowed to trade and this can bring in much needed money to allow the charity to carry out its work.
There are three types of trading allowed by charity law.
Primary Purpose Trading - to exercise a trade in the course of the actual carrying out of a primary purpose of the charity. Examples include:
- educational services by a charitable school or college in return for course fees;
- holding an art exhibition by a charitable art gallery or museum in return for admission fees;
- residential accommodation by a residential care charity in return for payment;
- sale of tickets for a theatrical production staged by a theatre charity; and
Ancillary Trading - is treated as primary purpose trading for both charity law and tax purposes. (A charity may carry on trade up to £50,000 , provided that the turnover for this part of the trade is less than 10% of the turnover of the whole trade.)
An ancillary trade is one that does not directly further a primary purpose but is done in the course of the actual carrying out of a primary purpose of the charity. An example of an ancillary trade is the sale of food and drink in a restaurant or bar by a theatre charity to members of an audience.
Non-primary Purpose Trading - all the profits from the trading are to be used by the charity. The trading is done in order to raise funds for the organization. The limits are set out below.
|Total of all incoming resources in a particular tax year of charity||Maximum permitted trading turnover in that tax year|
|£20,000 to £200,000||25% of charity’s total incoming resources|
There is no statutory definition of "all incoming resources". But, for the purposes of this limit, the Inland Revenue considers that "all incoming resources" means the total receipts of the charity for the year from all sources (grants, donations, investment income, trading receipts, etc), calculated in accordance with the normal charity accounting rules.
In order to qualify for the exemption, the trading turnover must either not in fact exceed the relevant threshold during the relevant tax year or, if the turnover does exceed the threshold, the charity must have had a reasonable expectation at the start of the tax year, that it would not do so.
Decisions around legal structures can have a far-reaching impact on the success nor otherwise of an organisation. We would always recommend that you speak to one of our development team at One Walsall on 01922 619840 or contact us at firstname.lastname@example.org for further support.