Setting up a charity shop

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Before your start setting up shop

Charity shops are a good but complex way to fundraise. You should think about the following issues and needs before you get started:

• there are statutory obligations involved in operating as a retailer, charity, employer and occupier of property
• running a charity shop has all the attendant problems of a small business, such as staff and building issues, with the added concerns of where to get both your workforce (volunteers) and stock (donations)
• around 60-80 per cent of turnover will go to running costs, such as rent and wages
• you will need start-up capital of £5,000-£50,000, to cover the rental deposit, shopfitting, essential building repairs and staff recruitment (note that the average refit costs £10,000-£20,000).

Concessions and controls

Charity shops receive significant tax concessions, because all of their profits fund their charity’s work and this has public benefit. Here are some examples:

• exemption from corporation tax on profits
• zero VAT rating on the sale of donated goods
• 80 per cent mandatory non-domestic business rates relief, funded by central government - if the charity shop sells ‘wholly or mainly’ donated goods, the proceeds are applied for charitable purpose and the occupier of the premises is a charity (not a trading subsidiary)
• local authorities have the discretion to grant charity shops a further 20 per cent relief on business rates.

Because these are significant concessions, the Charity Commission and Her Majesty’s Revenue and Customs exercise controls to ensure that charities abide by their responsibilities and meet their obligations.

If an organisation wants to use the words ‘charity’, ‘charitable’, ‘charities’, ‘charity's’ or ‘charities‘ in its title, the Secretary of State for Business, Enterprise and Regulatory Reform must give approval before the title can be registered with Companies House. Prior to registration, Companies House will need to see a letter from the Charity Commission confirming whether or not they have an objection to the use of these words in that organisation's title.

What's needed for a successful charity shop

• Good location, with plenty of footfall
• Dedicated shop manager, with retail experience (usually a paid position)
• A large roster of highly motivated volunteers (Charity Finance surveys have found the average number is 19 volunteers per shop, working an average of around six hours a week to cover 12 morning and afternoon shifts over six days
• Regular, good quality donations
• Attractive layout, to make the shop inviting
• Well-equipped backroom, for storage and sorting.

What's next...

• Property acquisitions

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