With all that has been happening over the last 6 months, many charities have had to pivot or adapt their activities in response to the impact of the Global Pandemic. For some this has involved looking at new ways to generate income, to operate or to collaborate with others.
Now is probably a good time to review your current activities and ensure that you have not run foul of UK tax legislation.
Over the next few weeks, we focus on areas where your income or operations may have changed and where this may have a tax implication for the charity.
Trading vs Non-Trading
As you can see, risk arises where a charity moves away from generating income and delivering its prime purpose charitable activities. Even innocuous decisions such as acquiring sponsorship for an event can bring with it risk. Is the sponsorship a “donation” (charitable) or is the donor purchasing marketing services (trading)?
Often a solution for charities generating larger amounts of non-prime purpose income is to form a charitable trading subsidiary which it wholly owns and which gift aids its profits to the charity on an annual basis. This eliminates corporate tax on the trading profits as long as payment is made within 9 months of the year end date.
Although, Trustees do need to ensure that the subsidiary has sufficient reserves to allow it to operate without the need for the charity to loan it monies to do so, as that could be seen as a non-charitable activity. Click here for our September 2019 issue, which looked at this in more detail.