What is trading?

Trading is the exchange of goods or services for a fee. For tax, the law does not specifically define trading, but case law has built up to create a set of indicators or ‘badges’ of trade. The main points to look for are:

  • Repetition – where the trading is regular rather than a one-off event.
  • Profit motive – generally the profit motive should be present for trading to exist, even though a profit is not always actually made.
  • Mechanism for selling – the existence of a shop or catalogue or other means for the sale of the goods or services indicates the existence of a trade.
  • Acquisition of items for re-sale – buying goods with the intention of reselling them rather than consuming them will indicate a trade.
  • Similarity to existing trades – selling goods or services in the same or a similar way to existing traders.

HM Revenue & Customs (‘HMRC’) may decide that a trade is being undertaken even if only one of the above criteria is fulfilled.

Want to discuss further?

Ross Palmer

Senior Tax Manager

Gillian McKay

Senior Tax Manager

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