ICAEW.com works better with JavaScript enabled.

Charities can provide services or sell goods for a fee, which is classified as trading. This is an important source of fundraising for many charities and, without it, less money would be available to support their causes.

Charities can carry out primary purpose trading without incurring income or corporation tax, but need to be aware of the tax implications if they undertake commercial activities outside their objects to generate profits. Many charities set up trading subsidiaries to improve their returns from commercial activities and optimise their tax position. HMRC and the Charity Commission offer guidance to charities deciding whether to set up a subsidiary trading company and how to finance it.

There is rightly a concern by donors and the public about whether trustees should undertake activities that will expose the charity to both financial and reputational risks. Many trading subsidiaries were severely impacted by the Covid-19 pandemic, especially those with activities that relied on human contact, such as running conferences, other events and charity shops. 

Using a trading company can lull trustees into believing it does not require the same level of oversight and scrutiny as the charity. This would be a mistake due to the losses that can occur, and other risks associated with the trading subsidiary. The rules do not allow a charity to keep propping up a loss-making subsidiary unless it is carrying out activities that are part of the charity’s primary purpose. 

Developing new business lines and income-generating activities requires business skills and an understanding of commercial imperatives. If managed effectively, commercial trading helps charities build financial resilience and generate profits that support the delivery of charitable activities.


Charities often introduce commercial activities to diversify their income streams and avoid becoming too reliant on grants and donations. When charities decide to trade, trustees and management should consider whether a trading subsidiary is required and how they will use it. The charity should develop a business plan and assess the demand for their proposed goods and services. Trustees must consider the viability and sustainability of the subsidiary’s business model and the set-up costs before they decide on the investment. 

Charities may require professional advice to determine the most appropriate structure for the planned trading activities. It can be difficult to determine which activities qualify as trading, and how they will be classified for tax purposes.  

In some cases, subsidiaries have been set up many years beforehand and the activity that required a subsidiary has since ceased. Trustees need to consider whether any remaining trading activities of the subsidiary could instead be operated by the charity, perhaps negating the need for a subsidiary company.


You may also be interested in

ICAEW Community
Charity polaroid
Charity Community

Supporting finance professionals in their paid and voluntary roles in or with the charity and voluntary sector. Membership is free and open to everyone, including non-ICAEW members.

Charity Community
Building blocks
Trustee training module

Six online training modules covering the duties, obligations, operational and strategic considerations of trustees.

Start today
Audit and Assurance
5 white paper aeroplanes in flight, and one blue one peeling off upwards.
Join the Audit and Assurance Faculty

Stay ahead of the rest with our comprehensive package of essential guidance and technical advice.

Find out more