Trawden Forest Community Centre
Trawden Forest Community Centre, based in Lancashire, is a community facility run and managed by volunteers. It provides a community hall for events and meetings, several smaller meeting rooms, a community shop, library, garden and an area where people can meet informally over a coffee.
The building was formerly used as a Surestart centre but was faced with closure in 2014 due to funding cuts. Steve Conway was recommended by Buttress Architects to pick up a case that had caused several previous consultants something of a headache. Here’s the story of how we solved it.
Trawden village has few local amenities, with the local shops closing one after another, and members of the community being forced to travel outside of the village for basics. Seeing this problem, the charity decided to open a small shop to serve the community. This is where it got sticky and technical….
Trawden Forest Community Centre held two local authority leases on two adjacent buildings in the village, one the community centre, the other the library. Both have restrictive leases with no subletting allowed and a consistent application of these restrictions applied by the Landlord, Lancashire County Council.
All charities have a small trade allowance the “small scale trade exemption” which allows a limited amount of non-charitable trade by charities to raise funds for their charitable work. Trawden Forest as a charity was set-up as a standard recreational welfare charity with provision to manage and maintain a community centre in the village. The provision of a shop was therefore “non-charitable activity” subject to various income limits for it’s non-charitable activities. The emerging issue was that the shop was in danger of generating so much income that the charity was in danger of breaking these restrictions, leaving the very real possibility of HMRC demanding the charity pay tax on all its income – not just that from the shop.
The solution seemed obvious, set-up a trading arm, a wholly owned entity that separated the charity from the shop, solving the issue of tax and payments for the charity. The entity would have to be registered separately as an independent business and all dealings with the charity recorded and available for audit should the need arise.
However, the lease for the space used by the shop was owned by the charity and the local authority was unwilling to vary the contract. How could the charity provide space to the shop without breaking the lease or be seen to be subsidising a separate and private business with the provision of free space? In short allowing a trading arm to use the space either broke the lease or if the shop continued without any changes the charity would break HMRC regulations on charitable trade.
After several frustrating months of no progress, and trustees considering closing the shop, CAS Coop was asked to step in. We needed a solution that met the terms of the lease while protecting the charity and maintaining a vital local service.
The solution we provided was simple and straightforward – After a short site visit we suggested the following:
- Establish a trading arm separating the shop from the charity with clear profit allocation clauses for the benefit of the charity (not a standard 1 share for profit company) and clear local community involvement;
- Once incorporated issue a restrictive management agreement to the trading arm for the provision of services (the shop) to the Charity.
Within a few weeks we had this plan up and running, registering a bespoke trading arm, and working with Gisella at Ratio Law, a management agreement framed within the restrictions presented by the local authority lease. Charity regulations intact, lease respected and HMRC tax regulations followed!
