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HMRC internal manual

Business Income Manual

Meaning of trade: scope of trade: introduction

Having established that a trade, or a venture in the nature of trade, exists (see BIM20050 onwards), the next question to consider is the scope of that trade.

In many cases the nature and extent of a particular trade is never explicitly considered. This is particularly the case where there is no dispute about the nature of the trade, whose scope is implicitly understood and accepted.

However, the scope of a particular trade is fundamental when questions arise concerning:

  • whether particular receipts are income of the trade,
  • whether expenditure is incurred wholly and exclusively for the purposes of the trade, or
  • whether expenditure is capital or revenue for tax purposes.

One trader’s sale, or purchase, of a fixed capital asset may be another trader’s sale, or purchase, of trading stock.

As Romer L.J. noted in Golden Horse Shoe (New) Ltd v Thurgood [1933] 18TC280 (see BIM21040) at page 300:

‘… it is not always easy to determine whether a particular asset belongs to the one category or the other. It depends in no way upon what may be the nature of the asset in fact or in law. Land may in certain circumstances be circulating capital. A chattel or chose in action may be fixed capital. The determining factor must be the nature of the trade in which the asset is employed.’