Tax law should be amended so charities that trade do not have to set up separate trading companies, according to a paper published this week.
The paper says existing laws make it difficult to determine when an activity qualifies as trading and therefore how it will be classified for tax purposes.
This complexity can deter some organisations from fundraising and lead to extra costs for those that set up trading subsidiaries, Framjee adds.
"The current tax regime means that much of the normal fundraising activity of a charity is treated as trading and can lead to a tax liability," his paper says.
He adds that many charities default to putting such activity through a trading company, which yields no benefit but does lead to increased costs and administrative burdens, such as accountants and lawyers' fees.
There are also risks to trustees that many are unaware of, says Framjee.
"Trustees may be abdicating their oversight responsibilities once an activity is not carried out by a charity as they believe that their responsibilities do not extend beyond the charity.
"As charities work for increased efficiencies and strive to improve their effectiveness and governance, it is time for a rethink of the current approach."
Framjee says charities should be allowed to undertake all trading within their organisations without the need to set up separate trading companies.
"A simple amendment to the tax law to extend the primary purpose trading exemption to all trades or to remove the fixed quantum cap for the small trades’ exemption will benefit many charities without any real reduction in the tax take," the paper says. "It is time for a rethink."
Vicky Browning, chief executive of Acevo, and Caron Bradshaw, chief executive of the CFG, say in a joint foreword: "Having to set up trading subsidiaries for fundraising activities that do not involve significant risk simply because of tax risk is money and time that could be better spent, without adverse effect on the public finances.
"The ideas contained in this paper have much to commend them and few, if any, noticeable drawbacks."
The sector has been wrestling with the issue of trading subsidiaries for many years without success.
The 2002 government report Private Action, Public Benefit said allowing charities to undertake all trading within the charity "would remove much of the burdensome complexity in the current system".
An HMRC spokesman said it was unable to comment on a possible change to policy.