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 Data Services CIC has been placed into administration seven months after it was assimilated into the Directory of Social Change.
Age Concern Liverpool will sell a database of 20,000 older people to businesses wanting to tap into the ‘grey market’ as part of a new trading venture.
Christian book and bible charity IBS-STL UK is looking to sell all its operations and wind itself up after the implementation of a new IT system went badly wrong and capped off a succession of financial problems. It is the first time in recent history that a top-250 charity has chosen to wind up.
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