Your charity is trading if it sells goods or services to customers. There are rules on what types of activities count as trading.
What is a charity that trades?
A charitable trading company (CTC) is a company which is set up to trade on behalf of a charity, as a means of raising funds for that charity. The main reason for needing such a company is the general rule that a charity may not undertake trading except as an incidental part of its main activity.
What are charitable trading activities?
Charities might carry out non-primary purpose trading to fulfill social objectives outside the charity’s main purpose or simply to raise funds. Examples of non-primary purpose trading are: The sale of Christmas cards or calendars to raise funds for the charity.
Can a charity trade commercially?
Charities can set up subsidiary companies to carry out trading on their behalf. … As long as the charity uses the income for charitable purposes, it doesn’t have to pay tax on it. HM Revenue and Customs (HMRC) treats subsidiary trading companies owned by the charities as normal commercial enterprises for VAT purposes.
What is your main trading purpose?
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.
Are charities allowed to make a profit?
Charities can make a profit or surplus. But all the surplus funds have to go back to the charity. Similarly, charities can and do invest their money in order to generate a return.
How do charities make money?
As well as fundraising from the public, charities also get money in several other ways. … This money helps make the donations they get from the public go further and helps the charity to be sustainable in the long run, even if fundraising or money from other sources goes down.
What can charities sell?
Examples of primary purpose trading include: a care home charging to provide housing and care services for elderly people. a charity for the disabled selling products made by its beneficiaries. a charitable theatre selling tickets for its production.
How much do charities earn?
On average, the most well-known and largest charities in the UK will spend between 26-87% of their annual income on charitable activities – i.e. fulfilling the charitable services the charity exists to provide. We appreciate that 26-87% is quite a range, so let’s try to narrow it down.
Can a company run a charity?
A company can be a charity if it meets the legal requirements required by charity law. This must be clear from the governing document, so if you wish to set up a charitable company you should use the model Memorandum and Articles of Association approved by the Charity Commission.
Why does a charity need a trading company?
The main reason a charity sets up a trading subsidiary is to undertake non-primary purpose trading in order to generate funds for the charity. If a charity engages in significant levels of non-primary purpose trading it is required to pay tax on the profits.
Is a charity classed as a business?
‘Business’ is not specifically defined in either UK or EU law. … ‘ A charity can be carrying on a business for VAT purposes even if it is only undertaking its primary-purpose activities on a not-for-profit basis. Activities on which charities simply cover their costs or even make a loss can still be ‘business’.
How do I set up a trading subsidiary for a charity?
How to set up a trading subsidiary
- Check if your charity’s constitution allows you to set up a trading subsidiary. …
- Choose a legal form. …
- Find out where to get start-up finance. …
- Establish and maintain a clear boundary between the parent charity and its trading subsidiary.
Can a charity be a subsidiary of another charity?
Linking charities isn’t the same as merging them. Linked charities can’t combine their assets, and can’t spend their money on the aims of the other charities they are linked to. Each charity also keeps its own separate governing document. Each charity must act in its own best interests and manage potential conflicts.
Can a CIC have a trading subsidiary?
Yes, a CIC is able to establish and run a charitable company that may be a subsidiary under the Companies Act 2006.