For Charities

This is a question I've been asked a couple of times recently so I thought it might be sensible to re-visit. Charities often worry about whether their trading activities are primary purpose or non-primary purpose. If the former no tax is payable. If the latter then subject to small trading exemption tax is payable which is why may charities who do trade consider the formation of a trading subsidiary to be essential. Examples of primary purpose trading where the profits are used for the charity's primary purpose include:-

  • An independent school charging students school fees for their education
  • A care home charging residents for accommodation and care
  • A college selling students text books
  • A museum running a cafe for visitors
  • Students who help run a farm on an agricultural college
  • Disabled staff of a cafe run by a charity that helps people with their disabilities
  • There are also specific rules for lotteries, fundraising events such as jumble sales, barn dances, dinners etc but be aware of these and any VAT consequences

There are however some small trading tax exemptions.

At the end of March this year the Charity Commission published Guidance for Charities with a connection to a Non-Charity. Regular readers of my blogs will know that I consider Charity Commission publications to be some of the best public communications around and this one is no different. It explains in detail what constitutes a connection and how you should manage it. It emphasises the importance of independence and the potential risks that the charity is exposed to. Most importantly it expects trustees to understand and apply the guidance.

Thus if you are a charity which:-

  • has set up and owns a trading subsidiary
  • has been set up by the non-charity, for example: corporate foundations, or charities set up by social enterprises, campaigning organisations, or government or local authorities
  • gets regular funding or support from the non-charity
  • gives regular funding to the non-charity, for example: grant makers who regularly fund a non-charity; charities set up to support the activities of a non-charity, such as charities with a link to an NHS Trust, or other ‘friends of’ charities
  • works regularly with a non-charity to deliver services, campaigns or other projects
  • has a non-charity as trustee, or where the non-charity can appoint some of the trustees
  • has a non-charity as its sole or significant member

this guidance applies to you and your trustees must make themselves familiar with its contents. You can download the document at

and if having read the document and recognise a potential conflict of interest or an issue of independence then give me a call on 07896894711 and we can discuss the problem and how it might be solved.




It is a long perpetuated myth that charities do not pay tax and one that has come to the fore recently with an announcement by HMRC that they are going to be writing to over 3000 Charities, primarily those with the largest gift aid claims to complete a tax return notwithstanding that they may have been previously exempt.It will be in the form of a Corporation Tax return no matter whether their charity is a lmited company, a CIC or unincorporated so if you receive one of these forms you should contact your accountant straight away.The returns must be submitted even if there is no tax due.

I always read the various decisions that the Charity Commission reach following their investigations. It is not just me being nosy. The fact is that there are always lessons to be learned. When the subject of the inquiry is a £9m turnover charity you sit up and take notice.

In July 2017 an inquiry into the charity Chabad Lubavitch UK was opened and took 20 months to report. The circumstance that triggered the enquiry was our old friend, failing to file accounts in a timely manner for several years despite some "regulatory guidance". What was found however is a lesson for many charities, particularly those with branches.

The good news was that there was no evidence of fraud or misappropriation of charity assets. However it was discovered that the charity's branches often failed to submit the required financial information to HQ which led to gaps in the accounting records meaning that the final accounts contained inaccuracies. However, it is the next conclusion that for me was most damning. "In previous years the budgeting,administration and financial controls procedures were inadequate for a Charity of this size and complexity"

Whether it is Brexit or the mixed messages about the economy, now is a good time for all charities to be asking themselves as to where they stand. In no particular order these are questions trustees and the executive team should be asking themselves.