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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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Meaning of trade: general: introduction

Tax is charged on the profits of a ‘trade’. There is usually no dispute that the activities carried on by a particular taxpayer do amount to a trade: the butcher, the baker and the candlestick maker all know, without getting into semantics, that they are carrying on a ‘trade’. However, the meaning of that word can be an issue where the activities are in some way out of the ordinary, so as not to be unquestionably ‘trading’. For example, liability can be substantially affected if the taxpayer can show that:

  • profitable transactions do not amount to a trade (so that there is no tax charge on the profits), or
  • loss making transactions do amount to a trade (so that relief for the losses can be got against other income).

You should always take a consistent approach to both profitable and loss making transactions (see BIM20090).

Further guidance on the practical approach to ‘trading’ questions is at BIM20080 onwards.