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A problem for organisations that trade through charitable subsidiaries
KEY POINTS
- Charities pay no tax on donations received and used for charitable purposes from their trading subsidiaries.
- A payment from the subsidiary company is a distribution which cannot exceed the company’s profit.
- It may be difficult for HMRC to recover tax relief on past incorrect gift aid claims.
- Charities should confirm their position and if necessary contact HMRC.
There is no relief generally available for a charity’s trading profits. Standard practice when a charity wishes to trade for example by running high street shops endorsed by HMRC (see charities guidance notes annex IV) has been for the charity to incorporate a subsidiary company which would carry on the trade and then donate the profits to the charity.
The subsidiary is liable to corporation tax on its trading...
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