What are the advantages and disadvantages of having a trading subsidiary?

Advantages of a separate trading subsidiary

  • Can protect the charity from tax liability
  • Clarifies objectives for each part of organisation
  • Limited liability status for separate trading company may protect charitable funds in the event of a mistake
  • Allows you to undertake certain activities which a registered charity may not
  • May be convenient for VAT planning

Disadvantages of a separate trading subsidiary

  • A more complex structure with added costs e.g. incorporation, audit, professional advice
  • Knowledge of very specific tax rules needed
  • Company must operate at ‘an arm’s length’ from the charity
  • There may have to be management charges between charity and company
  • Rates relief may be lost for activities undertaken in the subsidiary

Want to discuss further?

Helen Elliott

Partner

Ross Palmer

Senior Tax Manager

Gillian McKay

Senior Tax Manager

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