Warning to Student Unions: The Hazards of

Trading

From the March 2010 Charities Briefing Note from Mogers

Within the last few days, the Charity Commission has agreed with our views that not all Students’ Unions have understood the full implications of their charitable status, which could be put at risk by their non-charitable trading activities. Following registration, a Union’s activities will be subject to the scrutiny of the Charity Commission, and it will be expected to comply with the normal requirements of charity law.

Most Students’ Unions undertake non-charitable trading activities such as running a bar or a shop but have failed to separate this from their principal charitable activities. In addition to risking their status as a charity, the Students’ Union will also risk having to pay tax.

Do you understand the implications?
A Students’ Union’s activities are likely to comprise a mixture of pastoral, representative and trading activities. The former are likely to fall within its charitable objects but most “trading” activities (such as running bars, shops or nightclubs) will fall outside this category. Whilst a registered charity can carry out trading activities which are necessary for it to achieve its objects (e.g. a university charging tuition fees) or which involve a total turnover of less than £50,000 a year, if these rules are breached, the charity will have to pay tax on the trading profits and its charitable status may be at risk.

Clearly, Students’ Unions will not wish to stop providing non-chartable facilities and activities to their members, but charity law requirements mean that in order to continue to do so, these types of activity will need to be transferred into a subsidiary non-charitable company. This company can then pass any profits it makes to the parent charity in a tax-efficient way.

In putting together this type of structure a Students’ Union will require advice and support. Establishing the structure will normally involve transferring at least some staff into the subsidiary company and/or ensuring that proper cross-charging arrangements are put in place between two entities. There are also likely to be property issues to be considered, particularly if there are buildings which are owned, leased, occupied or used by the Students’ Union for non-charitable purposes. The financial implications of the transfer will also require careful consideration.

The arrangements that are necessary and which can be put in place will ensure that the charity is not seen to be supporting non-charitable activities from its own funds.

Unless you have already separated your non-charitable trading activities from the charitable activities of your Students’ Union, you will need advice on these issues. Do not hesitate to contact us and we can ensure that your Students’ Union, its trustees, staff and members are protected.

For further information or advice please contact Samantha O’Sullivan on 01225 750000 or email Samanthaosullivan@mogers.co.uk.

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