Our website uses cookies to enhance the visitor experience (what's a cookieCookies are small text files that are stored on your computer when you visit a website. They are mainly used as a way of improving the website functionalities or to provide more advanced statistical data.). Are you happy for us to use cookies during your visits?
Please note: continuing without making a choice equates to giving us your consent, which you can withdraw at any time via our cookies policy page.

 

Are you trading?


Newsletter issue - September 2022

Covid -19 had a devastating impact on many businesses with significant numbers closing for good. However, many workers who were made redundant or furloughed took the opportunity to set up their own businesses. According to the Government's December 2021 report 'Business Statistics' an estimated 810,316 new businesses were launched in the financial year ending in 2021 -- the highest number on record. The report also noted that there had been a distinct fall in the number of employees and said that it was believed that the decline was 'due to the growth in self-employment'. You may have been one of those who started selling one or two items possibly online and if so are you 'trading' in the eyes of HMRC?

Badges of trade

The answer to that question can be found in looking for the presence or absence of common features or characteristics of trade. These are the 'badges of trade' that have been identified by case law as follows:

It is important to note that no one 'badge' designates a trading activity -- the activity needs to be looked at as a whole although HMRC has stated that one of the more important 'badges' is the second one which considers the 'nature of the asset'. HMRC quotes items such as investments and works of art as not necessarily purchased with a view of trading.

When should HMRC be advised?

Even if the activity could be deemed as 'trading' there may be no requirement to notify HMRC; this would be particularly relevant should the gross annual trading income in the tax year from one or more trades is £1,000 or less under the 'Trading Allowance'. However, there is a proviso that should you already be self-employed in another activity and separately sell items as a trading activity (e.g. on e-bay) then this allowance cannot be used for the separate trading activity.

It may be possible to make use of the Trading Allowance if by doing so the calculation produces a bigger reduction than the usual income less expenses figure to ascertain the taxable profit. Be aware that if the calculation using actual expenses produces a loss then it would be more beneficial to not claim under the Trading Allowance as its deduction cannot create a loss.

Practical point

Class 2 and/or Class 4 National Insurance contributions may be payable should the profit exceed the limit of £6,725 for Class 2 NIC and £11,908 for Class 4 NIC.

 

 

Request a callback from Mapperson Price

Our philosophy is to provide a professional friendly service to local people, including employed, self-employed and small to medium sized businesses. Fill in our callback form and we'll contact at a suitable time for you.

The partners are supported by staff with a range of experience in accounts, taxation, payroll, and company secretarial work to support the various services the firm offers.

REQUEST CALLBACK

We always aim to get it right first time, every time, we'll respond to you as soon as possible after your form has been received by us.

 


Newsletter Icon

Newsletter Sign up

Handy tax tips delivered directly to your email inbox