Guidance

Charity trading: selling goods and services

When charities can trade, tax rules and when to trade through a separate company.

Applies to England and Wales

What trading is

If you want to sell goods or services, you will need to find out whether your activities are considered trading, and if they are, what type of trading you will be doing. Profits from some types of trading may be liable for tax.

Whether you are trading or not can depend on the number and frequency of transactions you make, among other factors. Selling donated goods, for example in a charity shop, is not considered trading so any profits would not be subject to tax.

Find out more about what is and is not considered trading.

Types of trading

There are two main types of trading for charities: ‘primary purpose’ and ‘non-primary purpose’ trading. These different types of trading have different tax implications.

Find out more about charity trading and tax from HM Revenue and Customs.

Primary purpose trading: selling to further your charity’s aims

Selling goods or services that directly further your charity’s aims as they are stated in your governing document is known as primary purpose trading.

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

You might also sell goods or services that support your primary purpose trading – for example, selling food and drink to audience members in the café of a theatre. This is known as ‘ancillary trading’.

Profits from primary purpose and ancillary trading may be exempt from tax, but only if the profits are entirely used to support your charity’s aims.

Non-primary purpose trading: selling to raise funds

You can also sell goods or services purely to raise funds: this is non-primary purpose trading. This kind of trading has no direct link to your charity’s aims.

Non-primary purpose trading could include:

  • selling greetings cards or similar items
  • a charitable theatre running a café that sells food and drink to members of the public, as opposed to audience members

Charities can carry out non-primary purpose trading if there is no significant risk that the charity could lose money from this venture.

Profits from non-primary purpose trading are usually taxable, even if they will be used to support the charity’s aims.

Mixed trading

Some trading activities may mix both primary and non-primary purpose trading. For example, a museum shop may sell books relating to an exhibition (connected to their aims), and some promotional pens (not connected to aims at all). By law, you must record these sales separately in your accounts if you mix trading types in this way.

How to protect your charity from losing money

All charities are exposed to risk if they are trading, but if your charity will be doing a substantial amount of trading, you may expose your charity to a greater risk that it could lose money. For example your business may fall out of favour, causing profits to turn into a loss. One way to reduce risk to your charity is to set up a ‘trading subsidiary’.

A trading subsidiary is a company that your charity controls. The law considers it to have the same legal status as a person. So a company, like an individual, can own land and enter in to contracts in its own name.

You must use a trading subsidiary for non-primary purpose trading where there’s a significant risk that your charity could lose money.

Find out more about risk for charities trading in this way.

There are some additional costs involved in setting up a company and it will be regulated by Companies House.

This way of operating can be complicated to set up. HM Revenue and Customs provides advice on tax issues and trading subsidiaries, and you may need to consult a solicitor or similar professional adviser.

Updates to this page

Published 23 May 2013

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