Scope of Trade
04/08/2022

There is no statutory definition of ‘trade’. The only statutory reference to the term is that ‘trade’ includes a ‘venture in the nature of trade’. This absence of a formal definition decides if an activity is a trade more difficult. However, over time the courts have set some established guidance. 

It is clear from the significant amount of case law on this subject that a decision on whether there is a trade is a grey area. However, even having established that a trade, or a venture in the nature of trade, exists, the next question to consider is the scope of that trade.

HMRC’s internal guidance on this matter states as follows:

In many cases the nature and extent of a particular trade is never explicitly considered. This is particularly the case where there is no dispute about the nature of the trade, whose scope is implicitly understood and accepted.

However, the scope of a particular trade is fundamental when questions arise concerning:

  • whether particular receipts are income of the trade,
  • whether expenditure is incurred wholly and exclusively for the purposes of the trade, or
  • whether expenditure is capital or revenue for tax purposes.

One trader’s sale, or purchase, of a fixed capital asset may be another trader’s sale, or purchase, of trading stock.



  

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Jonathan Loescher and Co Ltd is small firm of Chartered Accountants based in Weeford Nr Lichfield Staffs specialising in farmers and smaller businesses. The firm was formed in 1994 and  offers a comprehensive range of services, covering accountancy and business advice through to taxation and VAT advice.

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Jonathan Loescher & Co. ltd
The Steading, Jerrys Lane
Packington, Nr Lichfield
Staffordshire
WS14 9QA


01543 480772
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