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Charities and trading...not as easy it looks!

Churches and trading

What activities do you church trustees consider a trade?

What income types of trading are thereexemptions available?

There are two key issues to be addressed;

1. whether the activity is an activity of the church or

2. some other organisation however informally established.

A good rule of thumb is that if the activity is under the control of the trustees of the church and is funded by the church then it is highly likely that this is a church activity. Receipts and payments should appear in the church accounts.

In contrast however where the church might hire out its premises for the use of a third-party organisation, the question is whether the activity amounts to the conduct of a trade.

The problem is the Taxes Acts do not adequately define the word “trade”. This is why courts look at every case on its own merits. It looks for indications that trade is being carried on, and whether it is carried on, on a regular basis. Is the activity on a business footing, and is there a profit seeking motive? Is the activity carried out for the sake of the income it will yield? Obviously, there is a micture of motives and circumstances.

Also, the matter is complicated by other exemptions offered.

The main trading exemption available to charities is the exemption of the profits of a trade where the trade is exercised in the actual carrying out of the primary purpose of the charity.
In the case of the church, the primary purpose is to advance religion. In the case of a CASC, it is to advance the cause of community benefit. This restricts considerably the kind of activity that can qualify. The sale of bibles will qualify, but may conduct of a nursery facility may not.

The answer to the question of of what is trade, and what is not is not straightforward., Especially if there is some scale about the activity.

Example: Christmas Fayres, Summer Fetes, Bonfire Parties, are by their nature transient activities: they each take place only once annually, although plans may be made for next year’s event the moment the last stall is packed away. They fail the “frequency” test to amount to the conduct of a trade. By contrast, a café that is open a few days a week, or even just once a week throughout the year, has a degree of permanence about it: it will build up its clientele over time.

Advice should be sought in most cases.

Here is a link from HMRC called “Charities and trading”. Hopefully, it can help you. Let us know if we can help too.