A guide to third sector trading - WCVA

It’s an idea, but is it business? A guide to third sector trading
1: Getting
started
2: First steps 3: Business
planning
4: Legal and
governance
5: Funding
and
resourcing
6: Financial
controls
7: Managing
growth
8: Management
and
governance
9: Social
enterprise
10: Sources
of support
• The sale of second hand goods is a potentially complex area. But
a basic rule of thumb is that the sale or letting of goods which
have been donated to charities are zero rated.
− The benefit is limited by the work which you might carry out
on donated items – for instance, cleaning and basic repairs on
old furniture and white goods is fine, but you would need to
pay VAT on sales if you used the donations as raw materials for
producing something different.
− You should check for more information with HM Revenue and
Customs if you are planning to generate income from second
hand goods.
• Whilst these limited VAT benefits alone should not be the reason
for choosing charitable status, they can be valuable, in certain
areas of charitable activity such as healthcare.
• A trading subsidiary enjoys some, but not all, of the VAT
privileges of its parent charity, provided there is a formal
agreement for trading profits from relevant sales to be passed to
the charity. But the wider privileges which apply to corporation
tax are not available.
Further information:
Information on VAT, including the current turnover threshold
figure can be found on the HM Revenue and Customs web
site’s charity section at www.hmrc.gov.uk.
Rate relief for charities
The basic position:
• Non-domestic premises occupied and used by a charity are
entitled to 80% mandatory rate relief, known as ‘charity rate
relief’. The remaining 20% may be waived at the discretion of
the rating authority. In order to qualify for this relief, a property
must be:
− occupied by a charity, or the trustees of a charity, and
− used wholly or mainly for ‘charitable purposes’.
• Rate relief for charities
− does not cover fundraising activities (because fundraising
itself is not a charitable purpose in law)
− does include the sale of some donated goods.
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