Generating earned income for Christian charities Stephanie Biden 22 November 2016 199999/0882 Breakfast Serial

What can YOU trade to raise funds? Common trading activities: Government service contracts Charity shops Letting out premises Consider what is unique to your organisation Expertise and knowhow Intellectual property Premises/infrastructure Brand Networks 199999/0882 Breakfast Serial

Examples Epilepsy Scotland created Charity Clear, an online payment gateway where 100% of the merchant account transaction fee is donated to charity. The Salvation Army runs Employment Plus (a back to work service funded by government contracts) which includes a Portable Appliance Testing (PAT Testing) business, homelessness services, a company selling brass band instruments and various other social enterprises. 199999/0882 Breakfast Serial

Because you think it must be easier than writing funding applications Why trade? Because you’ve heard you becoming a social enterprise is the next big thing Because you think it must be easier than writing funding applications Because you’ve tried everything else and there’s no money left Because one of your board is an enthusiast and wants you to ‘rebrand’ as a social enterprise

You want to make your organisation more sustainable Why trade? You want to make your organisation more sustainable You want your success to depend on whether your products and services are good and people wanting to buy them You want to make money to reinvest in your services To grow your organisation’s profile and reach

Resource competition/staff skills Mission drift Equality Act 2010 VAT Potential pitfalls Funding and cash flow Resource competition/staff skills Mission drift Equality Act 2010 VAT 199999/0882 Breakfast Serial

Charities, trading and the law

Work mainly carried out by beneficiaries Primary purpose trading Trade in the course of the actual carrying out of a primary purpose of the charity; or Work mainly carried out by beneficiaries 199999/0882 Breakfast Serial

Charges for educational services Examples of primary purpose trading Charges for educational services Sale of Christian literature, music, etc Charges for entry to galleries / museums Charges for health / social care services Sale of independent living aids Café run by and employing people with learning disabilities 199999/0882 Breakfast Serial

Profits exempt from tax if applied solely for charitable purposes Primary purpose trading consequences Profits exempt from tax if applied solely for charitable purposes No blanket exemption from VAT Rate relief not affected Public benefit and fee charging 199999/0882 Breakfast Serial

Complementary to primary purpose, eg: Museum café Crèche at a college Ancillary trading Complementary to primary purpose, eg: Museum café Crèche at a college Treated as primary purpose trading There must be a primary purpose trade Mixed trading, eg museum shop selling a range of goods: Both trades must be treated separately 199999/0882 Breakfast Serial

Profits taxable in principle Exceptions: Sale of donated goods Non-primary purpose trading and tax Profits taxable in principle Exceptions: Sale of donated goods Certain fundraising events Small scale trading Total turnover from all non-exempt trading activity ≤ £5,000 or 25% total incoming resources up to a maximum of £50,000 199999/0882 Breakfast Serial

Avoids charity law constraints Ring fences risk Joint venturing Using a subsidiary trading company Advantages: Avoids charity law constraints Ring fences risk Joint venturing Equity financing available Tax efficient Disadvantages Costs and administration Rate relief may be lost 199999/0882 Breakfast Serial

Company shares owned by charity Charity invests company: How does it work? Company shares owned by charity Charity invests company: Secured loan at commercial rate Shares Grant or soft loan if charitable or mixed motive investment Company carries out trade Profits paid to charity under gift aid Company has no profits to tax 199999/0882 Breakfast Serial

VAT group or joint employment contracts? Trading subsidiary – some more detail Company must pay full value for all assets / services provided to it by charity Generally dealt with under agreement between charity and trading company VAT group or joint employment contracts? Profit transfer by gift aid only possible if all shareholders are charities 199999/0882 Breakfast Serial

Further reading Charities Unlocked: Realising the commercial and Social Value of Charitable Assets published by The Social Investment Consultancy (2013) http://www.tsiconsultancy.com/wp- content/uploads/2016/02/TSIC-Report-Charities-Unlocked.pdf Why Social Enterprise? A guide for charities published by Social Enterprise UK (2012) http://www.socialenterprise.org.uk/uploads/editor/files/Why_Social_En terprise.pdf Charity Commission guidance CC35 ‘Trustees trading and tax – how charities may lawfully trade’ https://www.gov.uk/government/publications/trustees-trading-and-tax- how-charities-may-lawfully-trade-cc35/trustees-trading-and-tax-how- charities-may-lawfully-trade (2016) Charities, Trading and the Law by Stephen Lloyd and Alice Faure Walker published by Jordans (2009)

Stephanie Biden Partner Bates Wells Braithwaite Tel: 020 7551 7730 s Stephanie Biden Partner Bates Wells Braithwaite Tel: 020 7551 7730 s.biden@bwbllp.com 199999/0882 Breakfast Serial