06 October 2011
This fact sheet summarises the principal issues concerning academies’ fundraising activities.
Provided that a charity is acting within its powers, charity law allows it to derive income from a wide range of sources, the income from which would generally be exempt from income and corporation taxes. Some of the main exemptions are for investment income, income from land and buildings, lottery income but only some trading income. Capital gains are also usually exempt.
A notable exception to the generally relaxed attitudes towards how a charity should be able to raise funds is trading, and this can prove to be an issue from the point of view of both charity and tax law.
Most schools supplement their income by fundraising and they also generate further funds through other activities. The model memorandum and articles for an academy, however, specifically prevents the undertaking of substantial permanent trading activities. It is therefore important to identify which activities of the academy constitute trading and to consider whether it is appropriate to carry these out.
Where there is a danger that undertaking an activity could cause a charity to breach its powers or incur an unnecessary tax liability, it is common practice to hive it off into a subsidiary company. This is considered in more detail in our academies subsidiary trading companies’ factsheet.
the position generally
The trading activities of a charity are only exempt from tax if certain conditions are met. These are:
- the profits from the trade are applied for the purposes of the charity; and, either
- the trade is carried out in fulfilment of the primary purposes of the charity or is ancillary to these purposes; or
- the "trade" is carried out to raise funds for the charity and falls within the VAT exemption rules for fundraising events, or
- the income from the trade is considered "small" in relation to the other income of the charity.
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