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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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Meaning of trade: general: investigative approach

HMRC often has to decide whether a transaction of purchase and resale, or the provision of some service or facility, involves a trade for tax purposes. Almost any asset or activity can be the subject of trading and the question whether a trade exists is primarily a question of fact (see BIM20070). It follows that before you can take an informed view you must obtain all the facts relating to the transaction(s) in question.

These factors require an investigative approach. When looking critically at a transaction or transactions you should normally:

  • interview the person at an early stage to discover:
  1. the history of the transaction and all the background detail which may affect its treatment for tax purposes;
  2. the person’s intentions at the moment of acquisition (if the transaction is one of purchase and resale) remembering that the person may have to give evidence regarding that intention before the Tribunal;
  • obtain copies of all the related correspondence, and other relevant documents such as purchase and sales literature, brochures etc, estimates and invoices for work done on the asset, and the legal documents;
  • obtain information, including documents, from other tax offices which may bear on the issue - for example, what the vendor and the purchaser on resale said about the transaction;
  • review critically the assertions made in the light of the evidence available.

You should not take a firm view of the nature of the transaction until after you have completed the above review.

These suggestions do not impose any limitation on imaginative investigation. The scope of the preliminary work must depend on the nature and complexity of the transaction and you may discover, in the circumstances of the case, that other sources of relevant information should be tapped. In framing your enquiries take account of the case law (see BIM20085 onwards) and any other factors which may be relevant.