In what ways can a charity trade legally?

Charities are permitted to trade if the trade is in fulfilment of its charitable objects - this is known as primary purpose trading.

Income derived from activities which are undertaken as an integral part of carrying out the primary purpose or work by beneficiaries is known as ancillary trading.

Examples are a bar or cafe open only to people attending the charity's charitable activities or using its charitable services.

Ancillary and Primary Purpose Trading are not subject to income or corporation tax provided that the profits are applied solely for the purposes of the charity.

Small Scale commercial activities are also not subject to tax in the same way, provided that the annual turnover on the non primary purpose trading must not be more than 10% of the total turnover from primary and non primary purpose trading.

If a charity wishes to engage in activities which are outside its objects or in large scale trading activities then it may need to set up a trading subsidiary which can then pass its taxable profits (or a proportion of them) to the charity by way of gift aid.

Related

For more information see HMRC Information Sheet: Charities: trading and business activities

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