The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:
Trade is defined by statute as including “any venture in the nature of trade”.
Further interpretation of the statutory definition of ‘trade’ has been left to the courts, which have developed a number of tests, known as the ‘badges of trade’, to determine whether an activity is trading or investment in nature. It should be noted that the definition of trade for income and corporation tax purposes is different from the definition of trading for CGT and IHT. For more on this, see the Conditions for business asset disposal relief guidance note.
For individuals, the distinction can be more important because of the large difference between the top rate of income tax, which is applicable to trading profits and the top rate of capital gains tax, which is applicable to investment activities, the latter usually being charged at a much lower rate.
For companies, the distinction is less important as both gains and income are taxed at the same rate. However, the existence of a trade could impact the characterisation of losses generated by a company, and therefore the way in which such losses can be utilised. Furthermore, the re-characterisation of significant gains as trading income could leave prior year or in-year capital losses stranded within that company or group.
Much of the case law in this area is old or relates to individuals however, the principles may be applied to trades carried on by companies. It is perfectly possible that a modern case might be viewed differently by the courts and each case is dependent on the particular facts.
See Simon’s Taxes B1.403.
It should be noted that some activities are to be treated as trades by statutory authority (eg farming and market gardening, see Simon’s Taxes B5.101).
The badges of trade which have been developed by the courts are:
profit seeking motive
frequency and number of similar transactions
modification of the asset in order to make it more saleable
**Free trials are only available to individuals based in the UK. We may terminate this trial at any time or decide not to give a trial, for any reason.
Access this article and thousands of others like it free for 7 days with a trial of TolleyGuidance.
Read full article
Already a subscriber? Login
IntroductionUK tax must be withheld on UK payments including:•interest•royalties•rental incomeWithholding tax may be reduced under double tax treaties (DTT) or European directives, both of which may be subject to making a formal claim.This guidance note outlines the rules for UK withholding tax, and
Normal due dateSmall companies (including marginal relief companies) are required to pay all of their corporation tax ― nine months and one day ― after the end of the chargeable accounting period.For example, where a chargeable accounting period ends on 31 December 2018, the due and payable date for
This guidance note provides details of quarterly instalment payments (QIPs) for corporation tax purposes and which companies need to pay their tax liabilities in this manner.Generally, corporation tax is payable nine months and one day after the end of the relevant accounting period. However, large
What is structures and buildings allowance (SBA)?From 29 October 2018, expenditure on constructing a non-residential building or structure, or in certain cases, expenditure on acquiring such a building or structure, qualifies for an SBA. The following note has been updated for the changes announced
To view our latest tax guidance content, sign in to Tolley Guidance or register for a free trial.