VCHAR2100 - What is a charity?: Trading subsidiaries

Charity law restricts the activities in which a charity can engage to those relating to its charitable objectives. In addition trading activities of charities are exempt from corporation tax only to the extent that they are in pursuit of the organisations charitable objectives. For these reasons many charities establish trading subsidiaries. Charity trading subsidiaries engage in a wide range of commercial ventures in order to raise funds for the parent charity. Profits of trading subsidiaries can be passed to the charity free of corporation tax. It is important to remember that charities’ trading subsidiaries are not charities. Some VAT relief, such as the sale of donated goods and fund-raising events, specifically extend also to charities trading subsidiaries. But in many cases relief is available only to the charity.