In the IOM the charity rules don’t require us to have a separate trading company, which simplifies things a bit.
They don’t have to be in the Uk either, but there are tax reasons for doing so – I’m a trustee of a small charity, and our Treasurer (who is pretty experienced auditor in the charity sector) explained it thus:
A charity has two main types on income – Donations and Trading Income. Of the trading income, it can be split into Primary Purpose Income and Fundraising Income. Primary purpose trading is where the trading is carried out in furtherance of the charity’s objects (e.g. admission fees to the Museum?). Any trading which is not directly related to the Charity’s aims is fundraising income. Profits from this can be liable to tax if total income exceeds a certain % of the charity’s overall income.
By having a separate, but wholly owned trading company, it’s profits are subject to tax on their own, and the contribution to the Charity is a donation towards primary purpose. That way, the income can be kept below taxable level for both.
That’s a simplistic view, and whole books have been written on the subject, but that’s the main reason for having the separate company.
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