Charity merchandise: do we need a trading subsidiary?
Choose the buyer before paying a factory deposit. Merchandise sold purely to raise funds is non-primary-purpose trading; significant risk requires a trading subsidiary. Ask trustees to review potential losses and advisers to check tax separately. China sourcing can be coordinated by Cambridge China Bridge.
Classify the sales before choosing the buyer
This guide uses Charity Commission guidance for England and Wales. Selling goods purely to raise funds is non-primary-purpose trading. Treat bought-in fundraising mugs, bags or clothing as a classification question before ordering: explain what you will sell, to whom and how the activity relates to the charity’s purposes.
Give your adviser the governing document and proposed sales plan. Ask them to confirm the classification in writing rather than relying on the charity logo or the intended use of the proceeds. Our promotional merchandise guide covers branding, samples and product checks.
Test the loss before committing charity funds
Prepare a cash forecast from deposit payment through to customer receipts. Include samples, testing, freight, import charges, storage, selling costs, returns and unsold stock. Use actual quotes and ask your accountant which tax amounts belong in the cost forecast.
Run a downside case with weaker sales, late arrival, rejected goods and extra storage. Identify the cash shortfall, who would fund it and which charitable activities would be affected. Put the result beside available charity resources, rather than judging the order only by its expected margin. Our landed-cost stress test guide helps structure the exercise.
Use a subsidiary when significant risk is involved
Under the Charity Commission’s trading guidance, a trading subsidiary must be used for non-primary-purpose trading involving significant risk. Ask trustees and their adviser to assess the proposed order before a deposit creates a commitment. Do not treat an optimistic sales forecast as the risk assessment.
Where a subsidiary will trade, plan for it to buy the goods, own the stock and receive sales income. Ask your adviser to review charity funding, guarantees and shared resources before signing. Record the proposed contracting entity, payment account, importer and seller together; our importer of record guide covers the import arrangements.
Check tax separately from the risk decision
HMRC says a charity is not exempt from VAT when trading, although some VAT reliefs are available. Ask your accountant to check the small trading tax exemption, any relevant fundraising-event treatment and the tax consequences of using a subsidiary against your actual sales plan.
Keep the tax review alongside the risk assessment. A proposed tax relief does not answer how the order’s losses would be funded. Ask for a written comparison of buying through the charity and through the subsidiary, including administration, cash available for repeat orders and any planned transfer of profits.
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Turn the decision into an order approval
Keep an approval file with the trading classification, downside forecast, chosen buyer, adviser’s comments and trustees’ decision. Set a spending limit and a stop point if sample approval, demand or delivery assumptions change. Agree who can approve a revised order.
Send the sourcing team the approved entity name, product brief, sales destination and event date. Request a comparable landed quote and flag costs still awaiting confirmation. Cambridge China Bridge can coordinate factory enquiries and order checks through its own staff in China, while trustees and advisers settle the trading structure.
Frequently asked questions
Is charity fundraising merchandise non-primary-purpose trading?
Selling goods purely to raise funds is non-primary-purpose trading. Give your adviser the product and sales plan so they can check whether that describes your proposed activity.
When does a charity need a trading subsidiary?
A subsidiary must be used for non-primary-purpose trading involving significant risk. Assess the potential loss and its effect on charity resources before committing to the order.
Should the charity pay the factory deposit?
Settle the buyer first. If the subsidiary will trade, plan for its name to appear on the order and arrange its payment route. Have advisers review any charity funding or guarantees.
Is fundraising merchandise exempt from VAT?
Charity status does not provide a blanket VAT exemption for trading. Some reliefs are available; ask your accountant to check the proposed sales and import arrangements.