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HMRC internal manual

Business Income Manual

Meaning of trade: general: hobbies and artificial trades

You should be consistent in your approach to transactions that may be trading transactions, irrespective of whether they lead to a profit or a loss. However, you should examine critically claims that a trade exists where that claim may have been made to get relief:

  • that is only available to traders, such as loss relief, or
  • for the costs of a hobby, or
  • for investment losses, or
  • for capital expenses, particularly in group situations, by transmuting them into revenue deductions using an artificial trading company.

You should, as usual, consider all the facts, (see BIM20080). In particular, consider whether a profit is an isolated event. A taxpayer who wants tax relief for losses, which are not, in truth, trading losses may point to a profit in a particular year to support the trading assertion. This factor would normally carry little weight if that profit were an isolated event in an overall picture of continuing losses. The profit may be no more than a mere ‘flash in the pan’, or may even be a contrived event.

In particular see:

Futures BIM53251
Share dealing BIM56800 onwards
Losses BIM85000 onwards
Artificial trades BIM85740