Tax treatment of charity subsidiary companies

There are no restrictions on the type of trading activities that a charity’s trading subsidiary company can conduct. And, In common with any other UK company, corporate Gift Aid can be used to donate some/ all profits to a UK charity before tax is computed thus avoiding tax on the donated profits.

If your charity chooses to establish a subsidiary company you should consider seeking professional advice.

A charity subsidiary trading company is in most respects an ordinary limited company and profits are taxable accordingly. It is also regarded as a normal commercial enterprise for VAT purposes.

Most VAT reliefs available to charities are not available to charity trading subsidiaries

For most companies a donation to a UK charity has to be made during the accounting period to which it relates. However, if a company is established as a wholly owned subsidiary of a charity(ies) then the period during which a gift can be made is extended to 9 months beyond the end of the accounting period to which it relates.

This allows the company to make better-informed decisions about how much to donate to the parent charity(ies) and how much if any to retain for finance of future trading activities.

There are strict rules, which restrict the way a charity is allowed to invest in a subsidiary trading company to finance its trading activities.

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