Charities may choose to trade either in pursuit of their objects or for fundraising. In the latter case, they may have to set up a trading subsidiary.
The Charity Commission publication CC35 - Trustees, trading and tax (http://www.charity-commission.gov.uk/publications/cc35.asp) outlines how charities may lawfully trade and when a subsidiary is necessary.
It says: “Compared to ordinary commercial companies, charities enjoy considerable advantages in the tax treatment they receive in relation to trading and trading profits.
“However this preferential treatment comes at a cost. While charities may trade more or less freely in pursuit of their charitable objectives, there are restrictions on engaging in trades the objective of which is to generate funds for the charity.
“In particular, charities may not engage in such commercially-oriented trades where a significant risk to their assets would be involved.
“Where trading (other than trading in pursuit of its charitable objects) involves significant risk to a charity’s assets, it must be undertaken by a trading subsidiary.”
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GuideStar UK and its subsidiary trading company GuideStar Data Services have become part of the Directory of Social Change.
The British Lung Foundation has restructured its operations and created a new trading subsidiary that will deliver lung testing events for Primary Care Trusts across the country.
In challenging times, charities will be exploring every possible means of raising money. Trustees need to be careful that these fundraising efforts do not inadvertently expose the charity to an unnecessary tax liability. How do trustees make sure they are getting it right? Trustees will need to think about their powers, the business case, and tax. Check the governing documents and see what you can do – and look out for any clauses that talk about the ability to trade. Don’t stop planning if the governing document appears to prevent you carrying out the plan, but remember the restriction.
Quite a few readers will know friends house in Euston in London, having attended a conference or other event there. Our nickname is ‘Quakers' but we call ourselves ‘friends' and the charity which looks after our centrally-managed work at friends house is called the Religious Society of Friends. As a Quaker, I've always loved Friends House. Quakers are a non-credal, non-hierarchical movement so it's not our head office or central office. I prefer to use positive language - it's a place where kindred spirits of all formal faiths and none can come and feel comfortable and welcome.
Forewarned is forearmed: charities considering trading overseas should first get clued up about local tax laws
Do trading companies contain hidden liabilities for trustee and staff directors?
Why charities should tread carefully around trading companies
How a charity was left in seriously deep water by a trustee's plans to raise money through trading
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