Tax exemptions available
Your charity may be able to benefit from one or more of the three main reliefs available to reduce or exempt tax on the profits from trading activities. These are:

• a Primary Purpose trading exemption
• an exemption for trades conducted mainly by charitable beneficiaries
• a small trading exemption

You can also take advantage of Extra Statutory Concession C4 (ESC C4) if your trading activities are connected only with fundraising events.

To get tax relief for trading activities not covered by these exemptions your charity may also want to consider conducting all or part of its trading activities from a subsidiary trading company and transferring any profits back to the charity as a corporate Gift Aid donation.

For more information please see the detailed guidance notes about charity trading companies.

The Primary Purpose trading exemption
If your charity's trading activities are carried out in the course of meeting your Primary Purpose the profits generated will be exempt from tax as long as those profits are used solely for charitable purposes. Your primary purpose will be stated in your governing document (trust deed, memorandum & articles of association, constitution etc.).

Example
If the primary purpose of your charity is the advancement of education you can claim a primary purpose trading exemption on profits from the sale of goods or services that advance education eg school fees, university top-up fees etc.

Any profits from trading activities that do not advance education will not qualify. e.g. The sale of general conference facilities on your premises - this is not advancing education it merely a fund raising activity.

Activities ancillary to the primary purpose trade
Some activities that are not strictly primary purpose trading but, which could not exist without the Primary Purpose trade, can also be exempted as activities ancillary to the Primary Purpose trade.

Example
Providing places at a crèche for the children of students by a college in return for payment.

For more information please see the detailed guidance notes about primary purpose trading.

Work conducted by charitable beneficiaries
If the work in connection with your trading activities is mainly carried out by beneficiaries of your charity then the profits generated can be exempt from tax as long as those profits are used solely for charitable purposes.

Example
The sale of goods manufactured by disabled people

Workers do not need to be exclusively charitable beneficiaries; other workers acting in a supervisory or voluntary capacity are acceptable so long as charitable beneficiaries do most of the work.

PAYE and National Minimum Wage rules must still be applied to any paid employees (including those who are charitable beneficiaries).

The small trading exemption
This exemption can be claimed against the profits from any trading activities that are not otherwise exempt and where the trading turnover falls within certain limits.

These limits are set in relation to the turnover from small trading in comparison to the overall income of your charity - (including income from this trade).

As your total gross income is more than £20000 the maximum turnover from your non-primary purpose trade must be less than 25% of that total to qualify for the small trading exemption.

So, in this example the profits from the non-primary purpose trade would be covered by the small trading exemption.

If your charity inadvertently exceeds these limits - but it was reasonable to expect otherwise - relief may still be allowed for the year that limits are first exceeded.