1. Private & Confidential. Not for distribution. ©DWF LLP 2012 www.dwf.co.uk Go further Title needs degree sign (°) added from the “Insert/Symbol” menu. This needs to be added at 28pt compared to the 24pt title. IoF North West Conference Charity Trading Understanding the trading framework Catherine Rustomji Head of Charities – DWF LLP 4 November 2015

2. Private & Confidential. Not for distribution. ©DWF LLP 2012 www.dwf.co.uk Today’s Session What is trading? Types of trading –primary purpose –ancillary –mixed –non-primary purpose Exemptions –lotteries –small scale trading –sale of donated goods Use of Trading Subsidiary 2

3. Private & Confidential. Not for distribution. ©DWF LLP 2012 www.dwf.co.uk What is it? Why does it matter? 3 Trading

4. Private & Confidential. Not for distribution. ©DWF LLP 2012 www.dwf.co.uk It depends! –Number and frequency of transactions –Nature of goods or services being sold –Goods capable of being used by selling charity –Nature and mechanics of the sales –Presence or absence of a profit motive 4 Regarded as ‘trade’?

5. Private & Confidential. Not for distribution. ©DWF LLP 2012 www.dwf.co.uk Charitable Trading Contributes directly to one or more of the objects and Trading mainly carried out by beneficiaries of the charity Primary Purpose Trading 5

6. Private & Confidential. Not for distribution. ©DWF LLP 2012 www.dwf.co.uk Provision of education by fee-charging charitable school Sale of goods made by disabled people who are beneficiaries of a charity for the disabled Provision of residential accommodation by a residential care charity Sale of tickets for a theatrical production staged by a theatre charity Primary Purpose Examples 6

7. Private & Confidential. Not for distribution. ©DWF LLP 2012 www.dwf.co.uk Exempt from Corporation Tax Only if profits are applied solely for the charity’s purposes Regarded as a business activity for determining liability to VAT Primary Purpose Profits 7

8. Private & Confidential. Not for distribution. ©DWF LLP 2012 www.dwf.co.uk Contributes indirectly to the successful furtherance of the charity’s objects Treated as part of ‘primary purpose trading’ for both charity law and tax purposes Example:- theatre charity selling food and drink in its bar to members of the audience Ancillary Trading (1) 8

9. Private & Confidential. Not for distribution. ©DWF LLP 2012 www.dwf.co.uk Level of annual turnover? No specific level Level may have a bearing Use of funds raised is irrelevant Ancillary Trading (2) 9

10. Private & Confidential. Not for distribution. ©DWF LLP 2012 www.dwf.co.uk Trading comprising primary purpose and non-primary purpose Example: religious charity selling religious books and other books Treat as two separate trades Reasonable apportionment of expenses and receipts Mixed Trades 10

11. Private & Confidential. Not for distribution. ©DWF LLP 2012 www.dwf.co.uk Commercial Trading Trading intended to raise funds Not linked to furthering the objects Charities may engage in it only where no significant risk involved ‘Significant risk’ – turnover is insufficient to meet the costs of carrying on the trade Difference has to be financed out of the charity’s assets Non-primary Purpose Trading 11

12. Private & Confidential. Not for distribution. ©DWF LLP 2012 www.dwf.co.uk Size of the charity Nature of the business Expected outgoings Turnover projections Sensitivity of business profitability to the ups and downs of the market ‘Significant’ Risk 12

13. Private & Confidential. Not for distribution. ©DWF LLP 2012 www.dwf.co.uk Element of judgment –Trustees –Advisers No general exemption from Corporation Tax Use of profits is irrelevant If significant risk – use a trading subsidiary Risk & Non–Primary Purpose Trading 13

14. Private & Confidential. Not for distribution. ©DWF LLP 2012 www.dwf.co.uk Fundraising events Lotteries Small scale trading Sale of donated goods Key exemptions 14

15. Private & Confidential. Not for distribution. ©DWF LLP 2012 www.dwf.co.uk Supply of goods or services at or in connection with a wide range of fundraising events – also exempt from tax No restrictions on the nature of the event – e.g. bazaar, dinner dance, auction etc Must be ‘qualifying events’ Fundraising Events 15

16. Private & Confidential. Not for distribution. ©DWF LLP 2012 www.dwf.co.uk Must have a charitable purpose Must be organised by a charity or a trading subsidiary for the charity’s benefit Trading is not being undertaken through a series of events (e.g. weekly dinner dance) Accommodation for the event is not provided for more than two nights’ duration No more than 15 events of the same kind in the charity’s financial year at any one location by the charity or its trading subsidiary (NB: If more than 15 events, none of the events will qualify for exemption) ‘Qualifying Events’ 16

17. Private & Confidential. Not for distribution. ©DWF LLP 2012 www.dwf.co.uk Is running a lottery trading? Yes Allowed to run lotteries and profits are exempt from tax Risk is negligible Profits exempt from Corporation Tax, if: –promoted and conducted in accordance with the Act –profits applied only for charity’s purposes Lotteries 17

18. Private & Confidential. Not for distribution. ©DWF LLP 2012 www.dwf.co.uk Exemption from Corporation Tax Applies only where all relevant profits applied for charity’s purposes Does not apply where profits are exempt on some other basis Small-scale Exemption 18

19. Private & Confidential. Not for distribution. ©DWF LLP 2012 www.dwf.co.uk Annual turnover limit Reasonable expectation Profits used solely for charity’s purposes Small trading 19

20. Private & Confidential. Not for distribution. ©DWF LLP 2012 www.dwf.co.uk Total gross income of charity Under £20,000 £20,000 to £200,000 Over £200,000 Max permitted sales turnover £5,000 25% of total gross income £50,000 20 Small Trading – Annual Turnover Limit

21. Private & Confidential. Not for distribution. ©DWF LLP 2012 www.dwf.co.uk Not trading Where sold together with other goods – is trading Must be separately identifiable in charity’s records The connected trading must be considered separately either as: –primary purpose trading; or –non-primary purpose trading Sale of Donated Goods 21

22. Private & Confidential. Not for distribution. ©DWF LLP 2012 www.dwf.co.uk Charity with aim to enhance skills of disabled people runs a charity shop which sells:- Books, CDs & DVDs donated for sale – not trading Wooden toys made by disabled people – primary purpose trading Bought-in soft toys – non-primary purpose trading Sale of Donated Goods - Example 22

23. Private & Confidential. Not for distribution. ©DWF LLP 2012 www.dwf.co.uk Company limited by shares Wholly owned company Tax Gift Aid Governance & Funding Trading Subsidiary 23

24. Private & Confidential. Not for distribution. ©DWF LLP 2012 www.dwf.co.uk Directors Trustees Skills-mix Payment Focus Governance 24

25. Private & Confidential. Not for distribution. ©DWF LLP 2012 www.dwf.co.uk Start up – no assets, no funding Loan Arms-length Motivation Operating capital Isolating risk Funding 25

26. Private & Confidential. Not for distribution. ©DWF LLP 2012 www.dwf.co.uk Questions? 26

27. Private & Confidential. Not for distribution. ©DWF LLP 2012 www.dwf.co.uk Catherine Rustomji Head of Charities catherine.rustomji@dwf.co.uk 0113 261 6187 07809 314 545 27

28. Private & Confidential. Not for distribution. ©DWF LLP 2012 www.dwf.co.uk Our firm is driven by its core Values which focus on: 28 Values Our ClientsOur PeopleOur CommunityOur Environment