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HMRC internal manual

Business Income Manual

Meaning of trade: badges of trade: the origin of the concept

Each case where the meaning of ‘trade’ is an issue must be decided on its own facts. One approach of the courts over the years has been to examine the facts and look for the presence or absence of common features or characteristics of trade. These are the ‘badges of trade’ which have been identified as case law has developed before the courts. Although more recent cases have tended to take a slightly different approach (see BIM20102), the badges of trade continue to form a part of judicial thinking on the meaning of trade. See for example Samarkand Film Partnership No 3 v HMRC [2011] UKFTT 610 (TC) in which the First-tier Tribunal considered the badges of trade in its decision that the partnership was not carrying on a trade (see para 221).

The report of the Royal Commission on the Taxation of Profits and Income in 1955 reviewed that case law and identified six ‘badges’. Since then the concept has been refined and enlarged and BIM20205 provides a summary.

A useful modern summary of the badges of trade is contained in Marson v Morton and Others [1986] 59TC381 at page 391, although the court disclaimed any intention of the review being exhaustive.