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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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Meaning of trade: general: fiscal purpose: not sole purpose

Where a fiscal purpose is present, the key issue is whether this is the sole purpose or not. If, on the facts, the transaction is a commercial trading transaction then it is a trading transaction whether or not there is also a fiscally motivated purpose. In Ensign Tankers (Leasing) Ltd v Stokes [1992] 64TC617 at page 742F Lord Templeman reviewed (and did not disapprove) the previous decisions in Coates v Arndale Properties Ltd [1984] 59TC516, Reed v Nova Securities Ltd [1985] 59TC516 and Overseas Containers (Finance) Ltd 61TC473. These were cases where some or all of the transactions in question had been held to have no commercial purpose or justification. Consequently the taxpayer was found either not to have carried out a trading transaction (Overseas Containers), or not to have acquired trading stock (Nova and Arndale). Lord Templeman commented, on Arndale, that on a true analysis the company had not traded at all.

Following Parker LJ’s review in New Angel Court v Adam [2004] 76 TC 9, the test is whether the transaction, when viewed as a whole, is a commercial trading transaction. If it has the outward trappings of trade, you should enquire into whether it is a commercial trading transaction. A transaction where the sole purpose is a fiscal one is unlikely to be a commercial trading transaction.

Where a particular statutory provision confers a tax advantage on a transaction, if it is shown to be a trading transaction, the fact that the transaction is also entered into to secure that advantage will not ‘taint’ the transaction and prevent it qualifying as a trading transaction (unless the statutory provision contains a relevant motive test).