Small trade concession

Since 2000, charities have been able to undertake small-scale non-primary-purpose trading activities within the charity without incurring a tax charge. This avoids the need to form a trading subsidiary company for small levels of trading activity. The exemption applies where the turnover from the non-exempt activities does not exceed the annual threshold or where there was a reasonable expectation that the turnover limit would be breached.

The turnover limit is £8,000 or, in circumstances where the turnover from the non-primary-purpose trade exceeds that figure, 25 per cent of the charity’s incoming resources subject to a maximum of £80,000. This limit applies to all non-primary-purpose trading activities in any one year. The limits changed in April 2019 – further background can be found here.

Total income of the charity Maximum permitted turnover
Under £32,000 £8,000
£32,000 to £320,000 25% of charity’s total income
Over £320,000 £80,000

‘Incoming resources’ for these purposes means the total receipts of the charity as shown in its statement of financial activities including grants and donations, legacies, investment income and income from trading activities.

Once the turnover threshold has been breached the entire trading profits are subject to tax, so that if a charity receives £100,000 of non-primary-purpose trading income the entire resultant taxable profits from that trading activity will be subject to tax.

There is also a ‘reasonable expectation’ test. This means that if the total turnover of taxable trading does exceed the above limits, profits may still be exempt if the charity can show that, at the start of the relevant accounting period, it was reasonable for it to expect that the turnover would not exceed the limit. This might be because:

  • the charity expected the turnover to be lower than it turned out to be or
  • the charity expected that its total incoming resources would be higher than they turned out to be.

HMRC will consider any evidence that the charity may have to satisfy the reasonable expectation test. For example:

  • the charity may have carried on the activity for a number of years and may therefore be able to show that the turnover increased unexpectedly compared with earlier years
  • the charity might have started carrying out the trading activity during the year in question and might be able to show that the turnover was higher than it forecasted or
  • the charity’s total incoming resources might be lower than it forecast, for example, because the charity did not receive a grant for which it had budgeted.

The type of evidence needed to demonstrate the levels of turnover and incoming resources which were expected might include:

  • minutes of meetings at which such matters were discussed
  • copies of cash flow forecasts
  • business plans and previous years’ accounts.

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