Does your charity need a trading company?
A charity's own work is tax-free, and so is a little other trading: up to £8,000 to £80,000 of sales a year, depending on its income. Go over and the whole profit is taxed, unless a trading company gives it to the charity by Gift Aid.
Your answer
Enter your charity's income, its sales and the profit on them to see whether you need a trading company.
About this calculator
For trustees, treasurers and finance staff of charities that sell things: a café, a shop of bought-in goods, merchandise, events or letting space.
It checks your other trading against the small trading limit, shows the Corporation Tax if you go over and trade yourself, and what a trading company that gives its profit to the charity would pay instead.
What happens to your answers
We don’t keep them. Your answers go to our server to do the sums and aren’t stored or logged. If you copy a link to your answers, they’re in the link itself, so only share it with people you trust.
How it’s worked out
First we take out sales that don't count: the charity's own work (primary purpose trading) and what goes with it, work mainly done by the people it helps, selling donated goods and fundraising events. What's left is your other trading.
The limit depends on your total income: £8,000 if it's under £32,000, 25% of it up to £320,000, and £80,000 above that. It's a limit on sales, not profit. Over it, the profit from all your other trading is taxed, not just the extra.
A trading company owned by the charity pays its profit to the charity by Gift Aid within 9 months of its year end, and takes it off its profit before Corporation Tax. We show the tax both ways for one 12-month year, assuming the charity is a company or CIO.
Worked example
A trading company would save about £2,280 a year: your £60,000 of other trading is £10,000 over your £50,000 limit, so the charity would pay £2,280 Corporation Tax on the whole £12,000 profit.
charitable company or CIO · 12-month year · profit is from the other trading only · all profit gift-aided in time
| All your sales from trading | £70,000 |
|---|---|
| Less sales that don't count (own work, beneficiaries, donated goods, events) | − £10,000 |
| Other trading (non-primary purpose turnover) | £60,000 |
| Charity's total income | £200,000 |
| Small trading limit: £200,000 × 25% | £50,000 |
| Over the limit by | £10,000 |
| Profit from all the other trading | £12,000 |
| Corporation Tax if the charity trades itself | £2,280 |
| Through a trading company: profit | £12,000 |
| Less Gift Aid to the charity (within 9 months of the year end) | − £12,000 |
| Taxable profit the company keeps | £0 |
| Corporation Tax for the trading company | £0 |
Based on HMRC's charities guidance (Annex iv, trading and business activities), the 2019 small trading exemption limits, the Charity Commission's CC35 (trustees, trading and tax) and this year's Corporation Tax rates.
Questions people ask
Is our charity shop trading?
Selling donated goods isn't trading for tax, so it's tax-free and doesn't count towards the limit. Selling goods you've bought in is trading.
What happens if we go over the limit by a little?
The profit from all your other trading is taxable, not just the part over. It's still tax-free if, at the start of the year, you reasonably expected to stay under, so keep your forecasts.
Does a trading company help with VAT?
Not by itself. VAT is separate: the tax exemptions here don't cover it, and if your VAT-able sales go over £90,000 in 12 months you must register.
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