Trading subsidiary

Where non-primary-purpose trading exceeds the small trading exemption, the standard answer is a subsidiary. It is a solution with its own duties attached.

Trustees must treat any funding of the subsidiary as an investment and consider it on arm’s length terms — as they would an investment in an unconnected company. CC35 warns that trustees can be personally liable for losses arising from propping up a failing subsidiary at the charity’s expense.

The subsidiary’s Gift Aid payment to the parent is capped at distributable profits. See deciding on a trading subsidiary and the small trading exemption.