The law provides that ‘where a trade is exercised partly in the course of the actual carrying out of a primary purpose of the charitable company and partly otherwise, each part shall be treated as a separate trade (for which purpose reasonable apportionment of expenses and receipts shall be made)’.

Charities may find that they are carrying out trading activities which only meet the primary purpose definition in part. In such circumstances, a charity must split the turnover from the trading activity between the primary and non-primary components and must also necessary allocate the expenses (both direct and indirect) to the two different activities. The legislation provides that there should be a reasonable apportionment of expenses.

Chapter 3.9 of HMRC’s trustees’ guidance on trading gives further detail.