Badges of trade

By Tolley

The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Badges of trade
  • The definition of trading
  • The badges of trade
  • Applying the badges of trade
  • VAT

The definition of trading

Trade is defined in ITA 2007, s 989, as including “any venture in the nature of trade”.

The interpretation of the word ‘trade’ has been left to the courts, which have developed a number of tests, commonly referred to as the ‘badges of trade’, to determine whether somebody is trading.

Even a single transaction can be considered a trade. For instance, a taxpayer who purchases a property to renovate may be considered to be a property developer, depending on the facts. This would mean any profit on the eventual sale would be assessed to income tax rather than capital gains tax.

It is not always about the taxation of profits. For example, a taxpayer may wish to argue that he is trading so that he can utilise his loss against income (rather than against capital gains).

The distinction between trading and investment is more important than ever for individuals because of the large difference between the additional rate of income tax (45%) and capital gains tax for higher rate and additional rate taxpayers (20% or 28% for 2016/17 onwards depending on the type of asset subject to disposal).

Property businesses are taxed in the same way as trades and therefore the same tests are applicable.

The badges of trade

The following is a summary of the key tests used by HMRC to identify whether the taxpayer is trading. They have been developed by case law and so are not exhaustive. You are free to suggest any other appropriate arguments to strengthen your case.

Some of the badges may point to trading and some may or may not be applicable. The weight given to each will depend on the facts of the situation.


In some circumstances, the existence of one single badge is enough to show trading.

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