Increasing a charity’s income by charitable trading: a treasurer’s point of view
Your charity has identified that it needs to increase its income but is not sure how it is possible.
You have considered a number of income streams. You’ve applied for grants, you’ve had donations from a few local businesses and you run a really successful bingo night on the first Friday in every month, but still your income is not enough to cover the ongoing maintenance costs of the ageing building.
The building is located in the heart of the village on a popular route for walkers in the area, and at one of your board meetings an idea starts to develop – what about opening a café in the annex which is currently rarely used? The idea starts with selling teas, coffee and a few cakes on a Saturday but quickly snowballs with suggestions of ‘why only a Saturday?’, ‘what about bacon sandwiches on a morning?’ and ‘we could do salads for lunch!’.
After the initial enthusiasm for the idea, thoughts turn to the practicalities of how the charity trustees can make their ambition of opening a café a reality, and what legal issues they need to consider. You start looking at the rules governing charity trading and quickly discover that as a charity, the ability to trade is limited, because making money is not in itself a charitable purpose, even if it is done to support the charitable activities of the organisation. To carry out trading activities you will need to set up a trading subsidiary. This is a separate company that is usually owned by the charity, and donates the bulk of its profits to the charity via gift aid.
But there are still so many questions:
- What trading can charities do?
- When must a charity set up a trading subsidiary?
- How can a trading subsidiary pay funds to its parent charity?
Fortunately, you know where to look to find these answers. The following websites are particularly helpful:
Now that you have all the information you need, it’s time to talk to the charity’s accountant. They have lots of experience of working with voluntary sector groups and you’re confident they will be able to give her the expert help you’re looking for.
The accountant proves invaluable and the trustees can now open that café they dreamed of safe in the knowledge that they are fully compliant with all legal requirements.
If you want to find out more about the issues charities need to consider if they plan to carry out any trading, come along to our next Treasurer’s Network Meeting on 13 October. These network meetings are for both new and experienced treasurers of voluntary community and social enterprise sector organisations across North Yorkshire.