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
