Open sign hanging on store door

Any charity engaged in providing services or fundraising needs to ensure the rules on trading are understood by its trustees and key staff.  Otherwise, there is a danger of losing tax relief and facing an investigation by the Charity Commission.

Charities should always ask of any activity:-

  1. Does this amount to a trade?
  2. If so, is it intrinsic to the objects of the charity – a primary purpose trade?
  3. If not, does it fall within one of the exemptions and relief?
  4. Does the charity have the power under its governing document to carry on the trade?
  5. Is it in the best interests of the charity?

Some points to be alive to:-


Question 1:

  1. Understand the difference between an investment and a trade;
  1. The sale of donated goods will not usually amount to a trade, but the realisation of the value of that donation. However, adding value to it by improving the item may be trade;
  1. A sponsorship arrangement where the charity is providing something in return is likely to amount to trading.

Question 2

  1. Fundraising is not a charitable objective of itself;
  1. Even if the trade is a primary purpose trade, the requirement for charities to provide public benefit means it has to be structured in a way which will achieve this.

Question 3

  1. Be aware of relief for particular types of community fundraising e.g. raffles and functions;
  1. Know the small trade limit that applies to your charity.

Trading by charities is a complex area, yet one that can present opportunities for charities to secure a more reliable income stream.  For charities above a certain size, a subsidiary trading company may also be a viable and tax-efficient way to raise additional funds.

Professional advice from experienced accountants and solicitors is a must for anything where the trustees cannot be sure of the answers to the five questions above.

If you need advice reviewing the issues raised in this article or any other issue get in touch either by telephone 01726 74433 or email