1. Generating earned income for Christian charities
Stephanie Biden
22 November 2016
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2. 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
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3. 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.
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4. 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

5. 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

6. 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
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7. Charities, trading and the law

8. 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
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9. 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
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10. 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
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11. 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
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12. 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
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13. 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
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14. 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
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15. 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
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16. Further reading
Charities Unlocked: Realising the commercial and Social Value of Charitable Assets published by The Social Investment Consultancy (2013) content/uploads/2016/02/TSIC-Report-Charities-Unlocked.pdf
Why Social Enterprise? A guide for charities published by Social Enterprise UK (2012) terprise.pdf
Charity Commission guidance CC35 ‘Trustees trading and tax – how charities may lawfully trade’ 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)

17. Stephanie Biden Partner Bates Wells Braithwaite Tel: 020 7551 7730 s
Stephanie Biden Partner Bates Wells Braithwaite Tel:
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