If your organisation is a registered charity, or intends to become one, there are specific issues to consider if the building will be used for a variety of activities and not solely occupied by you or only used for charitable activities.

Common examples of non-charitable use of community buildings include:

• activities carried out for the private profit of the organiser – such as Weight Watchers or events selling clothing and cosmetics.
• private functions – such as parties or wedding receptions
• social contact and entertainment activities – such as line dancing classes.

The income from these activities is non-charitable and so is potentially liable for tax and VAT if the taxable income overall is above the small scale ancillary trading thresholds outlined below.

Alcohol

As well as needing a liquor license, for charities the sale of alcohol has specific rules. It may be permissible if the sale is connected to carrying out the charitable activities. This is known as an ‘ancillary activity’.

For example a village hall or community centre providing facilities to play games and sports can provide refreshments (including alcohol) to the participants and spectators – but only to the participants and spectators. The same rule would apply to a local arts centre or theatre providing refreshments for people who attend an exhibition or performance.

The sale of alcohol in this way is permitted under charity law and any profits should be exempt from tax provided the total income from them is less than the thresholds for small scale ancillary trading outlined below.

Small scale ancillary trading

Charities are allowed to carry out small scale ancillary trading without being liable for tax under section 46 of the Finance Act 2000. The tax exemption applies if:

All profits are used for the furtherance of the charity’s objectives and turnover for the trading activity in the relevant taxable period is

• no greater than £5,000; or
• no greater than 25 per cent of the charity’s total income (for charities with a total income of between £20,000 and £200,000) or
• no greater than £50,000 for charities with an income above £200,000.

If your group is planning to run a mixed use building — or to sell alcohol — you need to seek expert advice on the potential charity law and tax implications.