Trade mission

  • 4th April 2024

Alice Unwin sets out a scenario of possible responses for a governor to consider as a result of a school’s trading subsidiary


The scenario

Your bursar reminds you that you are a director of your school’s trading subsidiary. You realise that you have never been asked to attend any board meetings, which is surprising, especially given the subsidiary is involved in letting out the school’s facilities. The main hall is used by a kids’ dance club on Saturday mornings, the gym is let out to local business people over the holidays and the boarding house is used in the summer by a group of Italian students learning English. Some of the subsidiary’s activities don’t appear to be charitable but you’re not sure whether this matters. When you speak to the accountant on your governing body, she explains that there are often tax advantages to using a trading subsidiary, but their use (and ongoing operation) gives rise to various governance and compliance considerations.

What should you do?

Option 1

You chat to a fellow governor who is also a director of the subsidiary and, following a quick look at the recently filed group accounts for the school, you are both struck by how much the school’s fee income is supplemented by the funds raised from the subsidiary’s activities and agree that this income stream is critical to the school’s cash flow. You decide, therefore, to encourage the bursar to grow this income stream as much as feasible and to explore the option not only of letting out the school’s facilities during the holidays but also letting out vacant facilities during the weekends and school days.

You also spot from the accounts that it’s sometimes the school, as opposed to the subsidiary, which is letting out the school’s premises, including letting the main hall for business conferences. These conferences appear to be quite lucrative and you don’t think it matters whether it is the school or the subsidiary letting out premises – after all, they are both part of the same group and have the shared aim of supporting the school.

Option 2

You are not clear who has day-to-day responsibility for compliance matters in relation to the subsidiary and this isn’t something that has been discussed at governing body meetings. You fix up a meeting with the school’s head of estate management to get to the bottom of the matter.

Option 3:

You speak to your chair and agree that the trading subsidiary should be included on the agenda for the next governor’s meeting so that the governing body can agree how it should be run and what its purpose is. You suggest that all the governors should be appointed to the subsidiary’s board so that everyone can be involved and understand the arrangements.

Which is the best option?

Option 1:

It is sensible and common to make use of a school’s estate to supplement its fee income. Care should be taken, however, to ensure that this does not comprise the use of the school by its pupils; letting out facilities during the school day can not only change the atmosphere in a school but can also present some thorny safeguarding and security issues.

In addition, where the use of a school’s estate amounts to non-charitable trading activity, this can lead to a Corporation Tax liability. However, if the trading is undertaken by the school’s trading subsidiary, the subsidiary can make a tax-deductible gift aid payment to the school of the trading profits. There are also charity law and ring-fencing of risk reasons for housing trading activities in a subsidiary.

In this ‘option 1’ scenario, the school is letting out its hall for business conferences, a non-charitable trading activity, and it would make sense for this arrangement to be routed through the school’s subsidiary.

Notwithstanding the potential benefits of using trading subsidiaries, they do bring with them additional governance and compliance obligations, and the cost and resources required to meet these should not be underestimated. This is particularly the case where the total trading income anticipated for the year falls below the small trading threshold of £80,000.

Option 2

You are right to raise this matter of compliance but (from a governance perspective) this matter should, in the first instance, be raised with your fellow directors, and then with the bursar/clerk to governors, rather than with the head of estates management.

Welcoming external visitors and groups onto a school’s grounds has its financial and PR benefits, but care needs to be taken to ensure that appropriate procedures are put in place, in particular with regards to health and safety and safeguarding matters.

In addition, any associated personal data collected by the school will need to be processed and stored in line with what are relatively stringent data protection regulations.

Option 3

You are correct to ensure the governance and operation of your school’s subsidiary is in order and for the full governing body to understand the school’s relationship with its subsidiary. The two entities do, however, need to be independent from each other, in particular:

  • The board of the subsidiary should not mirror that of the school, as the trading subsidiary’s directors have the same statutory duty to exercise independent judgment and act only in the best in interests of their company, as the governors do in relation to the school. The subsidiary should have its own cycle of board meetings, although it is sensible for this to coincide with the meetings of the school’s governors.
  • The school should not subsidise its trading subsidiary; any funding of the subsidiary should be on an arm’s length basis with interest charged at market rates.
  • The right for the subsidiary to let out the school’s facilities should be clearly documented in a licence agreement.


Letting out school facilities can not only provide important income streams for schools but also contribute to public benefit plans. Notwithstanding this, unless both the governing body and trading subsidiary board put in place and maintain appropriate governance and operational arrangements, schools risk exposing themselves to negative tax and charity law consequences.

Given the ongoing affordability crisis and the VAT and business rates relief threats looming on the election horizon, schools are under more pressure to diversify and bolster their income streams. Trading subsidiaries play a key role here, but they need to be operated appropriately; now is as good a time as ever for your school to review its corporate governance arrangements and documentation with its subsidiary.


Alice Unwin is a legal director in the charities and education team at BDB Pitmans.

Alice Unwin

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