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Back to Basics - Charitable Trading in Higher Education

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Steve Haywood · Posted on: June 6th 2025 · read

One of the key things to remember when it comes to charities is that not all income is automatically exempt just because it is in a charity. The same applies to the main charitable entity for Higher Education institutions. It is an easy trap to fall into, especially if in recent years all income has been exempt.

Investment income is generally exempt for charities, as are most chargeable gains. The most problems arise when it comes to trading. As a reminder, trading income will be taxable unless it falls within one of the following exemptions:

Primary purpose trading
Trading ancillary to primary purpose
Trading by beneficiaries
Small trade exemption

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Most problematic is what exactly is primary purpose trading? The starting point for this is to review the charitable objects of the organization. For most Higher Education institutions this will usually be provision of education and engaging in research activities. To be primary purpose, income must arise from trading activity in relation to the charitable objects, but must also be for the public benefit.

Teaching activity is usually fairly straightforward, as it is clearly within the charitable objections of an institution established to teach students, and because education is generally considered a public good so meets the public benefit test, even though the teaching is provided for a specific set of students. Even where training is provided for say employees of a particular company, this is usually for the public benefit as course materials and/or knowledge gained by the tutor from running the course can be used elsewhere for other students. Only where very specific closed courses are run for a set of commercial recipients, with any IP generated (such as course materials) being the exclusive property of the recipient and cannot be used elsewhere, might this be taxable.

"More problematic is research income. Research itself is likely to be consistent with the charitable objects of the organization and as it adds to the store of human knowledge and is generally published and shared with the world, would meet the public benefit test. Sometimes consultancy income can be disguised as research, and this is more likely to be non-primary purpose. Care needs to be taken whether income on a particular project is grant funding, or the payment for consultancy/advisory services. If it is the latter, it is more likely to be non-primary purpose and therefore taxable."

Steve Haywood, Tax Director

Universities tend to have a wide range of income that is from or related to students and academics, but not specifically for teaching or research. Examples include provision of catering services, income from students union shops, student accommodation and so on. This is unlikely to be primary purpose trading, but is included within the tax exemption on the basis it is ancillary to primary purpose.

So what is likely to not be primary purpose or ancillary to primary purpose but taxable? Key things to watch out for is where services are provided to both students and members of the public. Where this is the case, income from students is likely to be exempt, but there is no such exemption for income received from members of the public. Here’s a few of the key areas which are likely to be exempt:

Short-term letting of student accommodation to non-students during university holidays.
Catering provided to non-students
Income received by campus shops from non-students
Sports centre income such as membership fees and court hire income from members of the public

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Often there will be both taxable and exempt income, and it will be necessary to come up with a reasonable method of allocating costs between the two.

To round things off it is worth mentioning two other trading exemptions that universities can take advantage of. The first is the Small Trading Exemption. This allows upto £80,000 of otherwise taxable trading activity to be treated as non-taxable (assuming total income of the university is over £3.2m which will almost always be the case in the higher education sector). This is very useful where there’s very small amounts of taxable income.

The other exemption is for trading activity by the charity’s beneficiaries. This can arise where students (who are the beneficiaries) provide services to the public. This might be catering students working in a university run restaurant open to the public, or perhaps dentistry students providing dental services to the public.

As we’ve seen in this article, it is important not to assume that all income received by the university is non-taxable, and it can be quite complex to work out what is taxable and what isn’t. If you would like any advice on this, or would like a review undertaking of your institution’s tax returns, please do get in touch.