One of the conversations that has constantly recurred throughout my career of over 20 years is the "scary" world of charities and trading. Charity Commission guidance can be a dense forest to navigate, so trustees often rely on what they have been told.

Herein lies the problem. Often, what they have been told is incorrect, but it’s been passed around for so long it has become accepted fact. This ranges from "charities can’t sell alcohol" to "we need to set up a whole new company just to run a small café." (This is not an exhaustive list, far from it...)

Just to clear up the alcohol point: Charities can sell alcohol. They need a license from the council, but they can sell it! At that point, it’s just like the café. Let’s look at the three types of income that actually matter:

1. Primary Purpose Trading

This is trading that directly supports your mission.

• Example: An arts organisation selling tickets for a play. ‍
• Example: A youth charity charging a small fee for a youth club.

Most charities are comfortable here because the activity is the charity’s work.

2. Ancillary Trading - Trading that supports Primary Purpose Trading

A subset of primary purpose - like a bar at a theatre or a tuck shop at a youth club. It's there to support the primary activity. Charitable trustees aren't always comfortable with this, but in my opinion they should be.

3. Non-Primary Purpose Trading

Non-Primary Purpose Trading, which is done purely to raise money (like a charity shop selling donated goods, or a youth club running a commercial car park on the side). If you do too much of this, the Charity Commission and HMRC can start asking questions!

The "Grey Area": Ancillary vs. Non-Primary Purpose

This is often where charitable trustees feel less confident, and for good reason - the line between "safe" and "taxable" can be thin. According to the latest guidance, there is a big difference between trading that supports an activity and trading that just funds it.

• Ancillary Trading (The "Support" Category): This is trading that isn't your main purpose, but it makes your main purpose more successful. Think of a tuck shop at a youth club or selling refreshments to an audience during a theatre performance. Because this is a byproduct of your primary work, HMRC and regulators generally treat this as tax-exempt.
• Non-Primary Purpose Trading (The "Fundraising" Category): This is where you are trading purely to generate a profit. The activity itself doesn't further your mission; the money does.

The Golden Rule: It’s all about the audience.

Take that theatre bar example. If you only open the bar for ticket holders during the show, it’s Ancillary (usually tax-free). But, if you keep that bar open all day to the general public to compete with the pub down the road, it flips into Non-Primary Purpose Trading and you need to be careful.

The 2026 Tax Reality Check

If your trading moves into that Non-Primary category, you must keep a close eye on your turnover. If you go over these limits, your entire profit from that trade becomes taxable:

If you are still unclear drop Nova a call or email and we will support you through it!

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Written by Paul Kilgallon, experienced Enterprise Coach from Participate Projects who works with Nova's Adviser Team to support VCSE organisations (including CICs) in Wakefield District. In this series of blog posts, we're answering your frequently answered questions about running a VCSE organisation.