To trade or not to trade – it’s all about your business intentions

The process of buying and selling can be interpretted in many ways. Someone may label it as a job, to make a quick buck or even as a hobby. Whatever you choose the one thing to bear in mind are your intentions. This is no religious sermon; it is genuinely a requirement for business transactions. Your intention is a key factor to determine whether you are trading or not, because if you are trading the profits you are then subject to income tax.

This post hopes to provide a bit of intervention and illustrate what your options are. If you have any queries or want to find out more about trading intentions, then drop us an email

A profit seeking motive

If an item is purchased in the intention of selling at a profit this indicates a trade is likely to exist but if a stamp collector buys and sells for his collection, this then shows he is not trading.

Subject Matter

Many items are purchased for an investment i.e. paintings but when items are purchased in large quantities, this then cannot be justified as a purchase for an investment; therefore profit made on this resale is a trading profit.

Frequency of transactions

If we do something once and is never repeated again this is unlikely to be treated as a trade being carried out, however HMRC would question the fact if items were bought and sold repeatedly off the internet, and would most likely treat it as a trading profit.

Length of ownership

If we have owned something for a long period of time and we have decided to sell it, this does not indicate trading.  On the other hand an item owned and sold in a short period of time this then would be looked at if the aim was a profit motive.

Sales and marketing

HMRC would not just look at the profit earned but if any areas of advertising or brochures published was involved in order to give evidence that the trading did take place.

Asset acquired

If an item or goods where received through gift or inheritance, and were subsequently sold this does not constitute a trade, the reason of sale is also looked at in this case.

Are you trading?

In most cases one badge of trade is enough to recognise if trading exists, but in some cases all areas would be looked at for evidence of trade.  If a trade is identified then intentions of the trader becomes irrelevant.  It is the overall evidence which is looked at that determines a trade.

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