Finance: Advice line - Pesh Framjee on finance and governance

Q. We are a charity set up to preserve wildlife and educate the public about it.We are starting a trading operation, selling wildlife books and other unrelated items. We expect to make a profit - will this be liable to tax?

Section 505 of the Income and Corp-oration Taxes Act 1988 gives exemption for trading profits that are used solely for charitable purposes, providing the trade is exercised in the carrying out of a charity's primary purpose.

Charity Commission guidelines also recognise these categories of trading as acceptable. Nevertheless, it must be appreciated that when considering primary-purpose trading, a distinction must be made between activities directed towards the achievement of objectives and activities that, although they help the charity, cannot be described as carrying out its charitable purposes.

In this case, the sale of wildlife books qualifies as part of your primary purpose, but unrelated items would not, despite the fact that the profits from both types of sales are used exclusively for its charitable objects.

It is important to define exactly what the trading activity is, and why it is seen as part of the charitable purpose. For example, instead of selling wildlife books, you could market a commercial publisher of such books. In my experience, though, the Inland Revenue would see any payment as for the promotion of the publisher, and so not a primary-purpose trade.

If the trade you are proposing is a primary-purpose trade, then charging a fee or making a 'profit' does not mean that you will pay tax. You don't have to make a profit, though - some charities carry out primary-purpose trade at a 'loss' because they believe it is part of their charitable activity.

Pesh Framjee is head of the non profit unit at Deloitte and special adviser to the CFDG. No liability arises to the author, his firm or Third Sector. Send your questions to

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