A common issue that charities can easily stray into is a tax liability, caused when they inadvertently ‘trade’.
The difficulty is clarifying what trading means for a charity, as many charities do carry out trading activities to support their charitable cause. Examples include a charity theatre selling tickets to their shows, a charity hospital charging patients for their services, or a school charging for education. So it is a misnomer to suggest that charities cannot trade – many do so without any issues. But it is important to know what charities can and cannot do before they can end up with a tax liability and having to pay tax to HMRC on any surpluses they made.
There are other concessions which apply such as ancillary trade which can also be allowable even though on the surface you would consider it to be a trade – an example of which would be the charity theatre selling food and drink to the audience. Reliefs such as the small trading tax exemption are also available for any other income – but this is limited in its size dependent on the income of the charity.
It is easy to assume income is not trading when it would be. For example, a corporate business giving a charity money could be seen as a donation but care is needed as it could also be a payment in exchange for promoting the corporate business at a fundraising event by way of marketing or advertising and that’s a trade. Such a payment is often referred to as sponsorship and is a common area where trading income could be lurking in a charity and cause unexpected tax issues. But if this payment related to a fundraising event which falls into the fundraising exemption, then there may be no issue at all.
Confused? Our free seminars are here to help you – we explain the rules and give lots of examples to talk you through the things to look out for. What the terms all mean, how they work and when you need to think about a trading subsidiary, will all be explained. You can then look at your organisation and assess whether you have any concerns about your charity or ask us and we can talk through your situation. Join us for an informative and lively session.
This seminar has now finished, but you can find more events by checking out our events page.
This post was written by Helena Wilkinson Charities Partner at Price Bailey. If you need further information on any of the above, please feel free to get in touch with Helena using the contact form below.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.