Before your start setting up shop
Charity shops can be a good source of fundraising income but running one can sometimes be complicated. You should think about the following issues and needs before you get started:
- there are statutory obligations involved in operating as a retailer, charity, employer and occupier of property
- charity shops face many of the same problems as a small business, such as staff and building issues, with the added concern of where to get both your workforce (volunteers) and stock (donations)
- around 60-80% of turnover will go towards running costs, such as rent and wages
- you will need start-up capital of £5,000-£50,000, to cover the rental deposit, shopfitting, essential building repairs and staff recruitment (the average refit costs £10,000-£20,000).
Concessions and controls
Charity shops receive significant tax concessions, because all of their profits fund their charity’s work and this has public benefit. Here are some examples:
- exemption from corporation tax on profits
- 0 VAT rating on the sale of donated goods
- 80% mandatory non-domestic business rates relief, funded by central government - if the charity shop sells ‘wholly or mainly’ donated goods, the proceeds are applied for charitable purpose and the occupier of the premises is a charity (not a trading subsidiary)
- local authorities have the discretion to grant charity shops a further 20% relief on business rates.
Because these are significant concessions, the Charity Commission and Her Majesty’s Revenue and Customs exercise controls to ensure that charities abide by their responsibilities and meet their obligations.
If an organisation wants to use the words ‘charity’, ‘charitable’, ‘charities’, ‘charity's’ or ‘charities‘ in its title, the secretary of state for business, enterprise and regulatory reform must give its approval before the title can be registered with Companies House. Prior to registration, Companies House will need to see a letter from the Charity Commission confirming whether or not they approve an organisation using these words in their title.
What's needed for a successful charity shop
- good location, with plenty of footfall
- dedicated shop manager, with retail experience (usually a paid position)
- a list of highly-motivated volunteers
- regular, good-quality donations
- attractive layout, to make the shop inviting
- well-equipped backroom, for storage and sorting.
