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HMRC internal manual

VAT Charities

What is a charity?: Terminology

Charities will often refer to certain of their activities as “trading” activities. In this context the term “trading” is usually used to describe the organisation’s non-charitable commercial fund-raising activities. These activities are usually, if they are of any scale, carried out by the charity’s trading subsidiary. It is important not to confuse the term “trading”, when used in this way, with the term “business” as used for VAT purposes. For VAT purposes “business” can have a much wider application than “trading”, as understood by charities. A charity’s trading activities will invariably be business activities for VAT purposes. But it is important to bear in mind that, in addition, some or all of the charity’s primary or charitable activities might also be business activities for VAT purposes.

The distinction between “trading” and “business” is a common source of confusion for charities. A charity may consider very carefully the VAT aspects of their trading activities, but neglect to consider whether their charitable activities might also be “business” for VAT purposes.

When seeking advice charities will often refer to their “trading” activities. It is important when responding that you do not use the term “trading” if what you mean to refer to are the charity’s business activities.