Because charities are now required to consider whether any of their costs (both direct and indirect) are to be allocated to non-primary-purpose trading activities or passed to their trading subsidiaries the question of cost allocation is becoming increasingly important.

There are no formal requirements as to how a charity must allocate its costs other than that it must be on a reasonable basis. Suitable bases could be an apportionment of costs based on floor area where different trading activities occupy discrete floor areas or an allocation by reference to the amount of time spent by staff in dealing with a particular activity.

Charities are expected to have sufficiently detailed accounting systems to be able to identify the expenditure which has to be allocated between the various activities or entities.