Although charities and not for profit companies are allowed to trade in order to raise funds or carry out their charitable objectives, as well as to partake in non-charitable trading activity, it is essential that such endeavours do not put the charity’s assets at risk.
However, there is a significant difference between converting donations into cash and the wish to raise substantial sums through trading. In the latter case, it may be better if this activity is carried out by a trading subsidiary, an independent legal entity which is often fully owned by the charity.
Even when the use of a trading subsidiary is not legally required, it can prove to be the most tax-efficient structure, for example, by using Gift Aid on donations to the parent charity.
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