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
4.3 Charities and trading
Many people believe that charities are not allowed to trade. But this is far from true, and the question of trading by
charities is an area of great confusion and trepidation for new and even many well-established trading organisation.
The result is probably many projects which could benefit from charitable status never being registered, and large
numbers of subsidiary trading companies being established unnecessarily on the better-safe-than-sorry principle.
Knowing where you stand
Overcoming the confusion: Some level of confusion is not
surprising, since charity and tax law on the subject of trading are
hardly straightforward. But the high levels of anxiety they produce
can certainly be avoided.
• The first point of reassurance is that people are extremely
unlikely to get into serious trouble if they make the wrong
decisions about charities and trading. They may lose money –
or, more accurately, fail to save money – and they may face the
inconvenience of sorting things out later if they make innocent
mistakes. This is hardly desirable, but no one is going to jail.
• Secondly, you can’t be expected to be clairvoyant when you
set up something as complicated as a trading activity for social
benefit. Circumstances change, your enterprise will evolve in quite
unexpected ways, and legislation may move on too. So some
element of readjustment in your company structures, trading
arrangements, provision for paying or avoiding corporation tax etc
may be necessary anyway, regardless of any initial mistakes.
• You are much less likely to go wrong if you do some
basic homework before you start. See sources of further
information below.
Finding your way - other sections of this Guide
• Types of trading and charity law: The current section deals
with different types of trading and what is generally acceptable
and unacceptable in charity law.
• The pros and cons of setting up a charity: See section 4.4
• Trading subsidiaries: If your organisation is a charity already
you may be more interested in section 4.5 on the use of
trading subsidiaries.
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