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Not for profit organisation

Not for profit organisation

I have a client who is trying to determine what type of organisation they are. I have it down to two options a company limited by guarantee or an unincorporated association. The general story is that they run a small gift shop, which has all of the gifts donated. All monies raised are then transferred, in my opinion as a donation, to a company which uses the profit to maintain a railway station. The gift shop itself is at the end of one if the lines.

My question really is, if all of the 'Profit' generated is then paid out as donations, does this mean that here is no profit to disclose? Is the money being paid out classed as a donation?

Does anyone have any thoughts on what type of organisation the would be classed as? They cannot be a charity in their own right because they transfer all of their income to a limited company.

Thanks in advance


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03rd Mar 2016 19:30

Not sure

Firstly, I'm pretty sure that, these days, you can only get relief for donations if they are to a charity or to organisations like "Historic England".  In the old days it was for gifts for "charitable purposes".

On the sale of donated goods, charities can do this and, as long as the goods are not processed or changed significantly, the sale monies are not a trade receipt and therefore exempt from tax, and I'm wondering if this definition could be applied to your client's activities, even if not a charity.  Receiving donated goods or anything and giving nothing in return to the donor, should not be a trading activity IMO.

In the past I've had several NFP clients and tend to play safe and write to HMRC once they are registered to double check our approach.

The question does arise as to why the company running the railway station doesn't do all this for itself, why the need for a separate organisation?


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03rd Mar 2016 20:47

Please clarify
You say: I have it down to two options a company limited by guarantee or an unincorporated association.

Do you mean you are trying to decide what sort of entity should be used? Or is already being used?

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30th Mar 2016 10:10

Thank you for your input. I am still in decision as to what sort of entity it should be but get the impression from Paul that either way it doesn't really matter because the 'profit made' is generated from donated goods and paid into another charity so there wouldn't be any trading activity. Is that correct?

Thanks again

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