Charity Trading to raise funds
Andrew Evans
Partner, Geldards LLP
Outline
• What is trading
• When do you need a subsidiary
• How to set up a subsidiary
• Funding and Operational issues
• ...
What is trading?
• Tax definition
“trade, profession or vocation conducted on a
commercial basis and with a view to the
re...
What is trading?
• In practice
- sale of goods or services
- can include one off ventures
- does not matter if profits are...
Can Charities trade?
• Yes, but …
• Exemption from tax for certain types of
trading by charities
Types of trading
• Primary purpose trading
• Ancillary trading
• Non-primary purpose trading
• Non-trading activities
Primary purpose trading
• Carrying on the charity’s objects
• Trade carried on by beneficiaries
• Profits applied solely f...
Ancillary trading
• Part of the primary purpose trade
• Not a separate trade
• Examples
- sale of refreshments at a theatr...
Non-primary purpose trading
• Trading intended to raise funds for charity
• Not covered by any specific
exemption/concessi...
Non-trading activities
• Rent from land
• Investment income
• Donations (benefits to donor not amounting
to sponsorship)
•...
Small Scale Trading Exemption
• Lower of £50,000 p.a. or 25% of total income
• Disregard limit of £5,000 p.a.
• Applies to...
When is trading taxable?
• Non-primary purpose trading
• Above the small scale trading exemption
• No other exemptions or ...
What is a trading subsidiary?
• A company limited by shares
• Owned by the charity or charities
• Used for non-primary pur...
Why use a subsidiary?
• Risk mitigation
- protect charity assets from the risk of trading
- create a separate administrati...
Charity Commission view
• No significant risk to the charity’s resources
Funding
• Share capital
• Loans from the charity
• Loans from third parties
• Retained profits
Share capital
• Subscription for shares
• Cannot be easily returned to shareholders
• At risk if company goes into
liquida...
Loans from charity
• Commercial decision/charity’s powers
• Best use of charity resources/investment
policy
• Arm’s length...
Loans from third parties
• Banks unwilling to lend
• Charity guarantee
• High interest rate
• Loss of control
• Spread inv...
Retained profits
• Subject to corporation tax
Conflicts of interest
• Charities trustees
• Directors of trading subsidiary
• Duties of care
• Legal responsibilities
• S...
Other trading issues
• Staff
• Logo
• Shared resources
• Website
• Which entity are customers and suppliers
dealing with?
...
Extraction of profits
• Gift Aid payment from trading subsidiary
• All profits not retained by trading subsidiary
• Consid...
Other trading issues
• Loss making subsidiary
- type of trade
- trustee/director duties
- conflict of interest
• Closure o...
Useful websites
• www.hmrc.gov.uk/charities
• www.charity-commission.gov.uk
Social Investment Tax Relief
• Investment in shares or loans by individuals
• Investment in a charity, a community interes...
SITR Pitfalls
• Very complicated
• Restrictions on trading activities/charity size
• Restrictions on investor links to the...
Charity trading work shop
• Why would you set up a trading subsidiary?
- what do you think about?
• How would you fund the...
Workshop continued
• How would you extract money from the
subsidiary?
• What do you do if the subsidiary makes a
loss?
Conclusions
• If in doubt, take advice
• Keep it under review
• Do it properly
Thank You
Contact details
Andrew Evans
DD: 029 2039 1761
M: 07968 193331
E: andrew.evans@geldards.com
Upcoming SlideShare
Loading in …5
×

Charity trading to raise funds

372 views

Published on

From the Wales Charity Law and Governance Conference 2014.

Published in: Government & Nonprofit
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
372
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
6
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Charity trading to raise funds

  1. 1. Charity Trading to raise funds Andrew Evans Partner, Geldards LLP
  2. 2. Outline • What is trading • When do you need a subsidiary • How to set up a subsidiary • Funding and Operational issues • Extraction of profits • Social Investment Relief • Workshop
  3. 3. What is trading? • Tax definition “trade, profession or vocation conducted on a commercial basis and with a view to the realisation of profits”
  4. 4. What is trading? • In practice - sale of goods or services - can include one off ventures - does not matter if profits are to be used for charitable purposes
  5. 5. Can Charities trade? • Yes, but … • Exemption from tax for certain types of trading by charities
  6. 6. Types of trading • Primary purpose trading • Ancillary trading • Non-primary purpose trading • Non-trading activities
  7. 7. Primary purpose trading • Carrying on the charity’s objects • Trade carried on by beneficiaries • Profits applied solely for the benefit of the charity’s objects • Exemption from tax
  8. 8. Ancillary trading • Part of the primary purpose trade • Not a separate trade • Examples - sale of refreshments at a theatre - crèche at a school/college • Exemption from tax
  9. 9. Non-primary purpose trading • Trading intended to raise funds for charity • Not covered by any specific exemption/concession • Shop selling bought in goods not related to the charity’s objects • Tea/coffee shop • Sponsorship • Profits subject to tax (NB small trade exemption limits)
  10. 10. Non-trading activities • Rent from land • Investment income • Donations (benefits to donor not amounting to sponsorship) • Sale of donated goods NB watch out for repairs to donated goods
  11. 11. Small Scale Trading Exemption • Lower of £50,000 p.a. or 25% of total income • Disregard limit of £5,000 p.a. • Applies to non-primary purpose trading income • Disapplies charge to corporation tax
  12. 12. When is trading taxable? • Non-primary purpose trading • Above the small scale trading exemption • No other exemptions or concessions apply
  13. 13. What is a trading subsidiary? • A company limited by shares • Owned by the charity or charities • Used for non-primary purpose trades
  14. 14. Why use a subsidiary? • Risk mitigation - protect charity assets from the risk of trading - create a separate administrative unit to provide public services - tax reduction - staffing issues
  15. 15. Charity Commission view • No significant risk to the charity’s resources
  16. 16. Funding • Share capital • Loans from the charity • Loans from third parties • Retained profits
  17. 17. Share capital • Subscription for shares • Cannot be easily returned to shareholders • At risk if company goes into liquidation/administration • Not recommended
  18. 18. Loans from charity • Commercial decision/charity’s powers • Best use of charity resources/investment policy • Arm’s length terms • Written agreement • Repayment terms
  19. 19. Loans from third parties • Banks unwilling to lend • Charity guarantee • High interest rate • Loss of control • Spread investment risk
  20. 20. Retained profits • Subject to corporation tax
  21. 21. Conflicts of interest • Charities trustees • Directors of trading subsidiary • Duties of care • Legal responsibilities • Separate individuals
  22. 22. Other trading issues • Staff • Logo • Shared resources • Website • Which entity are customers and suppliers dealing with? • VAT registration
  23. 23. Extraction of profits • Gift Aid payment from trading subsidiary • All profits not retained by trading subsidiary • Consider repayment of loans • Payment within 9 months after the end of the accounting period
  24. 24. Other trading issues • Loss making subsidiary - type of trade - trustee/director duties - conflict of interest • Closure of trading company
  25. 25. Useful websites • www.hmrc.gov.uk/charities • www.charity-commission.gov.uk
  26. 26. Social Investment Tax Relief • Investment in shares or loans by individuals • Investment in a charity, a community interest company or a community benefit society • Income tax relief at 30% on up to £1m p.a. but lower limit for the charity • CGT deferral relief for the investor • Method of raising funds for charity trading
  27. 27. SITR Pitfalls • Very complicated • Restrictions on trading activities/charity size • Restrictions on investor links to the charity • Restrictions on benefits provided to the investor • Detailed professional advice essential
  28. 28. Charity trading work shop • Why would you set up a trading subsidiary? - what do you think about? • How would you fund the trading subsidiary? • Who would act as directors? • What operational issues would you consider?
  29. 29. Workshop continued • How would you extract money from the subsidiary? • What do you do if the subsidiary makes a loss?
  30. 30. Conclusions • If in doubt, take advice • Keep it under review • Do it properly
  31. 31. Thank You
  32. 32. Contact details Andrew Evans DD: 029 2039 1761 M: 07968 193331 E: andrew.evans@geldards.com

×