Students’ unions and trading activity

What does a students’ union need to consider if undertaking trading activity?

What does ‘trading’ mean?

As a charity, all activities undertaken by a students’ union must be in furtherance of its charitable objects.  The vast majority of students’ unions have objects which refer to the advancement of education of students at a named institution.

Where trading is in line with the charitable purposes (such as selling tickets to an event for students which is aimed at supporting their personal development), or is ancillary to the charitable purposes (such as charging students for drinks at an SU event), it is classed as 'primary purpose trading'.  Such activities can be carried out by a students’ union to any value, as it furthers the charitable objects.

However, if the students’ union undertakes activities that are not in furtherance of its objects but are purely a means of income generation, such as selling tickets to events to non-students or selling branded SU merchandise (hoodies, t-shirts etc), this is considered 'non-primary purpose trading'.  Profits arising from non-primary purpose trading are chargeable to corporation tax, unless it falls under ‘the small scale exemption’.

What is permitted?

The small scale exemption means that a students’ union can do a small amount of non-primary purpose (i.e. non-charitable) trading, provided that the income generated falls under a certain threshold. The current threshold is 25% of a student union’s total annual income between £32,000 and £320,000, up to a maximum of £80,000 per year. If a students’ union is undertaking a significant amount of non-primary purpose trading, and the income exceeds the relevant threshold, it would need to set up a trading subsidiary if it wished to continue to undertake this activity.  These thresholds do change from time to time and you should check the current allowances or speak to your accountant.

Using a trading subsidiary

A trading subsidiary may also be considered for proposed trading activities which carry significant risk (for example, if property or minors may be involved), or for activities which the SU has not previously undertaken. In general, a trading subsidiary wholly owned by the SU would transfer any profits it generates up to the SU, reducing or eliminating its liability for corporation tax.

A trading subsidiary reduces the risk to the students’ union itself, creates a separate administrative entity for the risky or high value activity and can reduce or eliminate the tax liabilities which might arise if the activity had been undertaken directly by the students’ union.

The amount on which tax relief may be claimed is limited to the profits that the trading subsidiary has available to distribute (which may be less than its taxable profits). This means that where the taxable profits of the trading subsidiary are higher than the distributable profits, the trading subsidiary may still have a tax liability.

It is important to maintain independence in the management of a students’ union and any trading subsidiary. This means holding separate meetings and preparing separate accounts for each organisation, and ensuring that the two entities are sufficiently distinct so as not to be confused by the student body or the general public.

The relationship between a students’ union and its trading subsidiary should also be carefully documented. Both organisations need to understand the use of shared resources (including staff and premises), what the financial expectations might be, and their individual liability for any trading activities being undertaken.

Further information

This is a complex area of law and this article only covers some of the general principles.  The tax consequences of any trading activity will need to be considered carefully, including implications for corporation tax, VAT and business rates and you should take advice from your accountant or tax adviser. 

For further information, students’ unions can also refer to the following guidance on charity trading:

•  Trustees trading and tax: how charities may lawfully trade
•  Trading and business activities – basic principles
•  Charity Tax Group - trading

Every SU is different and we are always happy to discuss your own specific situation and the legal aspects of trading and using a trading subsidiary.  Please get in touch with the authors of this article or any other members of our SU team.