Charity – using a subsidiary trading company

One or more charities can set up a subsidiary trading company to trade on their behalf. This may be a useful strategy if your charity:

  • makes profits on trading that is not linked to its primary purpose
  • makes a profit that comes close to or is higher than the small trading tax exemption limit
  • wants to protect its assets from any trading losses
  • wants to have a separate organisation to carry out all its trading activities

VAT considerations

A charity’s trading company will not have to pay VAT on:

  • profits it makes from donated good sales (as long as it gives these profits to the parent charity)
  • fundraising events it runs for its parent charity

Other types of VAT relief that charities get are not available for their trading subsidiaries.

Trading companies must pay tax and VAT on all their other income and profits in the same way as ordinary limited companies.

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