BIM24794 - Mutual associations: specific activities: voluntary organisations & charities: trading profits: ESCC4

Conditions for ESCC4 to apply

The issue of fund raising by a local body was considered by the courts in the case of British Legion, Peterhead Branch, Remembrance and Welcome Home Fund v CIR [1953] 35TC509 - see BIM24475. The courts found that the fund raising activities in that case amounted to a trade – the activities being carried out on a significant scale in a manner akin to a commercial activity. The courts allowed a deduction for the costs that would have been incurred had not local volunteers given freely of their time and services in delivering the fund raising activities.

In any case where the conditions in ESCC4 are satisfied, you should not assess the profits arising to a charity or voluntary organisation (for example, a local committee or Round Table) from activities such as the occasional sale of goods from shops or stalls, the running of a donkey derby, fireworks displays, carnivals and other events even where the activities amount to trading.

There are two conditions that must be satisfied for ESCC4 to apply:

1. The event is of a kind that falls within the exemption from VAT under Group 12 of Schedule 9 to the VAT Act 1994, and
   
2. The profits are transferred to charities or otherwise applied for charitable purposes.

As regards profits from the running of lotteries and football pools, see BIM61600 onwards.