Thursday 23 October 2014 THE FUNDING LANDSCAPE 2014 Everything you wanted to know about trading subsidiaries (but were afraid to ask) Samantha Pritchard Tel : Mark Honeywell Tel :
BOND DICKINSON CHARITIES TEAM Ranked as the leading charity law team in the North by Legal Dedicated practitioners specialising in the charity sector Supported in all the other legal areas by the wider Charities grouop
OVERVIEW What will we cover? The rules on trading for charities Managing the relationship between a charity and its trading subsidiary
TRADING AND TAX What is trading? General rules about trading and tax Exemptions Primary purpose trading Ancillary trading Beneficiaries Small trading
SMALL TRADING Annual turnover limit Total Gross Income of a Charity Maximum permitted sales turnover £20,000£5,000 £20,000 - £200,000 25% of Charity’s total gross income Over £200,000£50,000 (the maximum limit)
EXEMPTIONS Extra statutory concession for “one-off” fundraising events Regularity Public awareness Not in competition Application of profits
CONSEQUENCES OF TRADING Risk of loss of charitable status Tax liability Possible breach of trust and personal liability for trustees
TRADING SUBSIDIARY Wholly owned subsidiary of Charity Tax efficient fundraising vehicle Profits paid to Charity Charity receives funds as a donation = tax free Need for arm’s length relationship
THE GENERAL RULE A Charity’s resources may not be used other than to further its own charitable purposes
THE GENERAL RULE IN PRACTICE Staffing Governance, independence and conflicts of interest Premises Other shared resources Use of name and logo
FINANCE OF THE TRADING COMPANY – WORKING CAPITAL Does the Charity have the power to invest? Is the investment in the best interests of the Charity? Loan agreement or share capital? Security/guarantees
DIFFICULT TO SPOT TRADING SITUATIONS Sponsorship arrangements Commercial participator agreements Joint ventures with commercial organisations
SIGNPOSTS CC35 Trustees trading and tax : how charities may lawfully trade CC14 Charities and investment matters : a guide for trustees CC29 Conflicts of Interest : a guide for charity trustees
QUESTIONS & ANSWERS
CONTACT DETAILS Samantha Pritchard Tel : Mark Honeywell Tel :