Total income of charityMaximum amount of income from non-charitable trading
Under £32,000£8,000
£32,000 to £320,00025% of charity’s total income
Over £320,000£380,000

Importantly, the above limits apply to all of the non-charitable trading activities taken together; the limits do not apply per trading activity. This means that in order to assess whether or not a charity falls within the small-scale exemption, the total income from all of its non-charitable trading activities need to be considered. Other common charity shop activities that constitute non-charitable trading include the sale of bought-in goods and the commission charged under the Retail Gift Aid scheme. However, there might be other types of non-charitable trading activity within the charity, which also needs to be considered.

If a charity has income from non-charitable trading in excess of the applicable limit set above, then tax will be payable and this can affect the charity’s overall tax position. It is also likely to be outside the powers of the charity (many charity constitutions expressly prohibit taxable trading). In those circumstances, the charity should set up a trading subsidiary through which the trading may be carried out.

The trading subsidiary will be able to covenant its distributable profits to the charity each year, which reduces the tax liability of the trading subsidiary (often to nil), so the use of a trading subsidiary is both tax efficient and prudent, as it also ring-fences any risk associated with the trading activity.

Business rates

Charities qualify for 80% relief from business rates. The remaining 20% relief is at the discretion of the local rating authority.

To qualify for business rates relief, a charity shop must fulfil the following conditions:

Any charity wishing to install a café in its charity shop should therefore bear in mind that if the premises are not wholly or mainly used for the sale of donated goods, then it could jeopardise business rates relief.

Trading subsidiaries are not charities and are therefore not automatically entitled to 80% relief on business rates. This is at the discretion of the relevant rates authority; some take the attitude that as the undertaking is run for charity then relief should apply, but some do not take that view.

Some charities deal with this by ensuring that the parent charity owns or has the lease of the shop and is therefore the ratepayer entitled to relief. The charity then accounts for income and related expenditure on the sale of donated goods and the charity’s trading subsidiary accounts for income and costs on bought-in goods. The trading subsidiary is granted a licence of the shop for these purposes.

Other issues to consider

Depending on what type of food and drink you are serving, you may need to comply with food safety legislation and have the necessary hygiene certificates.

You will need to look at who is going to run the café and whether this will be employees or volunteers, and the employment law issues involved in this.

In addition, there are obvious health and safety considerations.


The issues involved are complex and charities should seek suitable professional advice to ensure they structure their affairs as efficiently as possible.

The content of this article is for information only and is not intended to constitute legal advice. Specific legal advice should be sought on a case by case basis. If you require advice on the legal issues involved in installing a café area in a charity shop or any general advice on commercial property, please contact Louisa Saunders and for advice on charities and trading please contact Liz Brownsell.

The content of this article is from the August 2019 edition of The Essential Trustee and is for general information only. For further information please contact Liz Brownsell or a member of our Charities Team. Law covered as at August 2019.

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