Will Students' Unions have to shut up shop?

A further look at the issues of trading and charitable status with regard Students' Unions.

The fact that Students’ Unions need to begin the process of registering as charities by 01 st June 2010 is old news. The reality is that many of you will already be well on the way to ticking this box on your task list and moving on to the next job… or will you?

Over the past few weeks we’ve become increasingly concerned that many Students’ Unions seem to have missed a consequence of Charity Commission regulation and charity law requirements that could potentially stop them from making any money… That means that they could – at worst - have to stop having a bar, running a shop, organising club nights or hosting concerts and events – or at best –have to pay tax on the profits of that sort of activity.

What’s worse is that the Charity Commission now agrees with us that many are leaving themselves wide open to major problems and costs.

The problem

The provisions of the Charities Act 2006 mean that Students’ Unions must register as charities. The registration process will begin on 01 st June 2010.

When you register as a charity you are required to set out the charitable “objects” of the organisation (ie. what you do). A Students’ Union’s activities are likely to comprise a mixture of pastoral, representative and trading activities. Whilst there is no problem with a charity conducting pastoral and representative activities there are very strict rules relating to trading activities.

Of course, a registered charity can carry out trading activities but only if they are necessary for it to achieve its objects (eg. charging tuition fees to allow a university to provide education) or if they generate less than £50,000 a year. If these rules are broken then the charity will have to pay tax on the trading profits and its charitable status may be at risk.

So, what does this mean in plain terms?

In plain terms, if you have not separated your trading activity from your pastoral and representative activity then you may well have a problem. Any income you generate from non-charitable trading activities (ie. your shop, bar, club nights etc) could not only leave you liable for corporation tax but could also risk the Students’ Union’s charitable status.

What can you do about this?

We accept that you won’t want to stop your trading activities from 01 st June 2010… so what can you do to protect yourselves? The solution is very quick to effect and is commonplace within charities that, like your Student Union, rely on trading activity for their income.

The solution is to transfer all problematic trading activity into a subsidiary, non-charitable company. That means, setting up a new company that is still under the umbrella of the Students’ Union charity but is your trading arm – you keep the pastoral and representative activity under the main Students’ Union (the charity) and put all the trading into this new company. The company can then pass any profit it makes back to the parent charity in a tax-efficient way.

Finding this confusing?

We’re not surprised. Putting together a structure like this requires advice and some time to discuss what really works for your Union.

Working out the best solution requires you to think about how your staff will be looked after and managed and also how you’ll handle the financial dealings of both organisations. There are also likely to be property issues that will need to be dealt with, particularly if the Students’ Union owns, leases or occupies buildings and uses them for non-charitable (ie. trading) purposes. As a bare minimum, setting this all up properly will normally involve transferring at least some staff over to the subsidiary company and ensuring that you have proper financial arrangements in place.

In a nut-shell?

As with all these things the best course of action is to start by seeking proper, expert advice. There is still time to make sure that everything is set up properly by 01 st June 2010… but that is only 7 weeks away… and the Charity Commission tell us that they will be checking that you have all done this properly.

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

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