Pros and cons of using a trading subsidiary

There are a number of considerations that charities and their trustees need to take into account when deciding on whether or not to set up, and use a trading subsidiary company to carry out certain trading activities that might otherwise be carried out by the charity.

In most cases, it will depend on the type of charity, its charitable objects, the proposed activity and expected level of income.

In terms of the retail Gift Aid scheme used in many charity shops, the use of a trading subsidiary to run the shops currently allows the use of a higher £1,000 threshold of proceeds before having to notify the supporter (limited to £100 where the charity runs the shops).

Our Charity Tax team has put together some of the key advantages and disadvantages of the subsidiary structure for consideration, which was recently published as part of Charity Retail Association’s newsletter.

Should this be of interest to you, please view our fact sheet for more information, or email our Charity Tax Partner Luke Savvas. 

Pros and cons of using a trading subsidiary

You might also be interested in… Tax planning and advice for charities

Our dedicated not-for-profit tax team advises all kinds of organisations. We work closely with charities, religious institutes, academies and schools, further and higher education organisations, INGOs, membership organisations and social businesses.

Take advantage of our sector experience to make sure you’re claiming all relevant tax reliefs and exemptions. Then enjoy directing the greatest possible funds towards the causes you care about.

Our tax and audit specialists work as one team and have trained as charity experts from day one. So you can count on regular communication, industry insights and an annual charity tax update after the Chancellor’s Budget. We also offer tax update seminars and bespoke fundraising workshops to help you keep up to date with the latest information.

Tax advice to help charities and their trustees

  • Review use of Gift Aid and other tax-efficient ways to boost income
  • Review group structures for tax efficiency and set up tax-efficient trading subsidiaries
  • Assess tax consequences of new contracts and agreements, for example, sponsorship agreements
  • Review VAT exemptions
  • Advise on dual-qualifying charities (a tax-efficient structure connecting a UK and US charity)
  • Guidance on property transactions 
  • Advise on employment tax issues
  • Advise on fundraising events and initiatives

Taxes and giving: getting it right

Charities are subject to the same compliance rules as any other taxpayer and exposed to potential significant tax penalties for getting it wrong! Under self-assessment tax, the burden is with charity trustees and key management to ensure they are fully compliant and disclose all relevant information under what has become increasingly complex tax rules.  Our specialist tax team will provide their knowledge and support to help reduce your risk and make sure you are getting it right!

Download these useful resources

Fundraising events: VAT and Direct Tax

Funding the arts: Tax reliefs

Tax efficient giving

Top 10 tips for fundraising events 

Pros and cons of using a trading subsidiary

Have you seen the latest Civil Society Charity Shop Survey?

Buzzacott are proud sponsors of Civil Society's 2019 Charity Shop Survey. Find out all the latest insights by downloading the survey via Civil Society's website here

Read more…

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