Application of the badges of trade

By Tolley

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

  • Application of the badges of trade
  • E-traders
  • Land
  • Share dealing
  • Cryptoassets
  • Taxable and non-taxable receipts
  • Registering as self-employed

This guidance note considers the application of the badges of trade in specific situations. For more on the badges of trade, see the Badges of trade guidance note.

The application of the badges of trade is also considered in ‘You’re trading!’ by Mark McLaughlin in Taxation, 30 June 2011, 8 and ‘Got the badge’ by Sarah Saunders in Taxation, 16 June 2016, 14 (both subscription sensitive).

Remember, the badges of trade do not apply for VAT purposes. Instead, you must determine whether there is a business. This is known as the ‘business test’ and the principles come from case law. It is possible for an individual to be trading for income tax purposes but not be able to register for VAT as he is not running a ‘business’ for VAT purposes.

C & E Commissioners v Lord Fisher [1981] STC 238 (subscription sensitive)

Guidance on the business test is provided in Tolley’s Value Added Tax 2019/20 Chapter 9.2 and De Voil Indirect Tax Service V2.202 (both subscription sensitive). HMRC guidance is available in VBNB10000, VBNB21000 and VBNB22000.

After deciding whether the taxpayer is running a business for VAT purposes, you need to consider the type of supply and whether he needs to register for VAT. An overview of these areas is given in the Overview ― registering for VAT guidance note (subscription sensitive).


Many people use online auction sites, such as eBay, to buy and sell personal items. However, they may not be aware of the tax consequences of these transactions.

For tax purposes, depending on the particular circumstances, online sales could be considered to be:

  • a trade
  • miscellaneous income (known as Schedule D Case VI income, or DVI income, under the old

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