The meaning of trade for tax purposes

Interestingly, there is no statutory definition of ‘trade’. The only statutory reference to the term states that ‘trade’ includes a ‘venture in the nature of trade’. This absence of statutory clarity has left definition – is a certain activity a trade or not – to the courts, and they have set some established guidance. 


This effectively suggests that the term ‘trade’ can be taken to refer to operations of a commercial kind, by which the trader provides to customers for reward with some kind of goods or services. 


The courts have also found the so-called ‘badges of trade’ tests to be helpful indicators of trading in some cases. The tests, whilst not conclusive, are used to help determine whether an activity is an economic / business activity or merely a money-making side line to a hobby. 


It is clear from the significant amount of case law on this subject that a decision on whether there is indeed a trade is often not black and white. Even if HMRC consider that the activities in question are a trade, taxpayers can make up to £1,000 per year from their ‘trade’ using the trading allowance that was introduced in April 2017. 

Posted in HMRC notices

Exeter Accountant MJ Smith & Co

Celebrating 25 years of excellence.

Free 1st Meeting
Fixed Fees
Free Support!

Find out more

Client Portal Login

Forgot Password?

Latest News

The VAT concept of business

The VAT system is policed by HMRC and there can be heavy penalties for breaches of the legislation. There are …
Read More

What is domicile?

Domicile is a general legal concept which in basic terms is taken to mean the country where you permanently belong …
Read More

Outline of special rules for use of vouchers and credit tokens

HMRC’s Employment Income Manual is clear that there are special rules when an employee receives goods or services by reason …
Read More

Twitter Feed