Charity trading subsidiaries Articles of Association and the VAT sporting exemption

Charity trading subsidiaries Articles of Association should prohibit distribution of profits to be eligible for the VAT sporting exemption.

In the recent decision St. Andrew’s College Bradfield v HMRC the First-tier Tax Tribunal held that, because a charity’s trading subsidiary kept a small amount of profit each year and was not prevented from distributing that profit to other companies/charities in its Articles of Association (but in a separate agreement), it could not rely on the VAT sporting exemption.

This case is particularly relevant for charities that have trading subsidiaries making sporting supplies, as they are the only ones subject to the specific ‘eligible body’ exemption. However, as a matter of best practice, all charity trading subsidiaries should include a prohibition on distributing any profit (other than to its parent charity/charitable organisation) in its Articles of Association and not in any subordinate agreement.

For more information or to discuss your requirements contact one of our charity law solicitors today on 01895 207809 or email charities@ibblaw.co.uk.