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Trading and charities

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As a charity, your ability to trade is limited, because making money is not in itself a charitable purpose, even you are doing it to support your charitable activities. 

The risks of trading outside what is allowable are:

  • if you do well and make a profit, that may be liable to tax
  • if you do badly and make a loss, that loss may be seen as non-charitable expenditure and in effect be liable to tax, and the trustees may be liable for breach of trust

If you want to make money for your charity through trading that isn’t allowable, then you need to look into setting up a trading subsidiary. This is a separate company that is usually owned by the charity, and donates the bulk of its profits to the charity via gift aid.

This page takes you through the basics of trading, and there is a lot of good detailed guidance on how to get all this right.

What is trading?

Trading is an exchange of goods or services for money. It's a bit of a grey area in tax - there is no statutory definition of trading, and it doesn’t precisely match the parameters used for liability to VAT. 

What are known as the ‘badges of trade’ have been built up through case law as a set of indicators:

  • Repetition – ongoing activity would suggest a trade
  • Profit motive – some aim to make money would be expected for a trade, even if you do not actually make a profit
  • Selling mechanism – setting up a shop or online access to services suggests intention to trade
  • Items bought for resale not for consumption/use
  • Similarity to other trades

HMRC don’t need you to fulfil all of these to decide that you are trading, it could just take one of the criteria.

What trading can charities do?

The key is that any trading a charity does should not risk its charitable purpose, so you need to think first about whether the trading you want to do, of itself, furthers your cause, or if not if it is too small to risk everything, or falls into a special category. 

Primary purpose trading – is when what you want to do to make money is part and parcel of your charitable work, it includes the situation where the trade is mainly carried out by the beneficiaries of the charity. Examples include:

  • training delivered by an educational charity in return for fees
  • café staffed by people with a learning disability run by adult social care charity
  • sales of tickets for theatrical production staged by a theatre charity.

Ancillary trading – you have apply a bit more judgement because these are activities which contribute indirectly to carrying out your work but aren’t just fundraising, for example:

  • Sale of food and drink in a theatre café – the public would expect that to be part of the overall experience, so the food and drink encourages them to participate in the charitable activity, not just to raise funds for it

Mixed trades – if a trade is partly primary purpose/ancillary and partly not, you have to look at it as two separate trades and account for them separately. The exempt trading element remains exempt, but the non-primary purpose element is taxable (unless it falls into the exemption for small trading). This is best illustrated by using the Charity Commission example:

  • A shop in an art gallery which sells a range of goods – some of which are connected with the primary purpose (books relating to exhibitions, prints of the charity’s paintings) and some not (pencils with rubbers on the end)

Further exemptions

Small trading tax exemption

You can do a small amount of trading that does not relate to your main purpose, but anything above this will either be subject to tax or should be put through a trading subsidiary.

The current definition of small is:

Charity's gross annual incomeMaximum permitted small trading turnover
Under 32,000 £8,000
£32,001 to £320,000 25% of your charity's total annual turnover
Over £320,000 £80,000

(Gross annual income is the total income before deducting any expenses)

See the GOV.UK website for more information

Lotteries and exempt fundraising activities

You won’t have to pay tax on lotteries and certain fundraising events as long as:

Setting up a trading subsidiary

As there are strict limitations on what trading a charity can do, you might want to set up a trading subsidiary to raise funds, for example running charity shops or selling consultancy and services to people other than your beneficiaries.

Key issues that arise:

  • Funding the trading subsidiary and ensuring that if you use charitable funds, it is done at arms length and properly written up
  • Making sure you have a board of directors that is suitably independent and can manage any conflicts of interest
  • Sorting out how to manage and charge work across the two organisations because the charity is not allowed to subsidise the trading subsidiary by providing free staff time

Pros and cons of a trading subsidiary 

  • Flexibility to do things the charity may not
  • Limited liability may protect charity assets
  • Clarity of objectives - the company can be clear about making money while the charity focuses on charitable aims
  • Protects charity from tax liability
  • May be useful for VAT 
  • It means a second organisation to administer – with added costs, and added complexity
  • The company operates at arm’s length - difficult to manage sometimes if conflict of interests
  • Possible management charges for shared staff/assets - practical issue
  • Won’t get rate relief for company


You'll find detailed advice on all the issues in Trustees trading and tax: how charities may lawfully trade (CC35) Section 4 and the Sayer Vincent Made Simple Guide.

And if you decide to go ahead, check out our How-to guide and take professional advice.

Page last edited Mar 31, 2022

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