B5.825 Exemption for profits of charitable trades
Provided that certain conditions are met, the following income is not taken into account in calculating the total income of a charity1:
• the profits of a trade carried on by a charity
• amounts treated as adjustment of income of a charitable trust under ITTOIA 2005, s 228 in respect of a trade carried on by the trust, and
• post-cessation receipts arising from a trade carried on by a charity which are received by the trustees/company (or to which they are entitled) (see B2.801)
For the exemption to apply, conditions A and B must be satisfied2.
Condition A is, in the case of the profits of a trade, that the profits are profits of a tax year/accounting period in relation to which the trade is charitable trade. In the case of an amount treated as an adjustment, Condition A is that the amount arises in the tax year in relation to which the trade is a charitable trade and in the case of a post-cessation receipt, condition A is that the trade was a charitable trade in relation to the period in which the cessation occurred.
Condition B is that the profits are, or the amount of the post-cessation receipt is, applied to the purposes of the charity only.
A trade carried on by a charity is a charitable trade if the trade is exercised in the course of carrying out a primary purpose of the charity or the work in connection with the trade