How can a charity trade legally?

Charities are allowed to trade in respect of their charitable objects. A charity set up to provide drug & alcohol support to people suffering with addictions will be trading in providing its services for example. Surpluses from these activities are not subject to tax because of an exemption.

Some charities commonly consider setting up a trading subsidiary. A trading subsidiary is a company wholly owned by the charity that undertakes the trading activity. Such subsidiaries are subject to tax but can donate their profits to their parent charity to minimise tax liabilities.

 If any of the following issues affect your charity, our dedicated Charities and Not for Profit Accounting team are able to help:

• We want to set up a subsidiary; how do we do it?
• Will the subsidiary have to register for VAT?
• Should we transfer staff into the subsidiary?
• Should we transfer assets into the subsidiary?
• Should the subsidiary own assets?
• How does the charity fund the subsidiary to get it started?
• Can the subsidiary borrow money?
• Who should the directors of the subsidiary be?
• How do we ensure that the subsidiary pays no Corporation Tax on its profits?
• Our existing subsidiary has brought forward losses; can we make Gift Aid donations?

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To find out how we can help you or your business with Charity sector advice, please contact a member of our team.