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HMRC internal manual

Business Income Manual

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HM Revenue & Customs
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Meaning of trade: scope of trade: activities included

Generally, a trade is a bilateral relationship under which a trader provides to a customer goods or services for reward (see BIM20100). However, the scope of the trade encompasses more than just the simple provision of the goods or services. It is wrong to dissect the trade into various discrete functions and seek to argue that a trader, in exercising one or more of those functions, is acting in a capacity other than trader. The scope of the trade encompasses any activity that the trader does solely for the purposes of the trade.

Diplock LJ said in the case of Harrods (Buenos Aires) Ltd v Taylor-Gooby [1964] 41TC450 at page 469:

‘You can always find some label other than “trader” to describe the capacity in which a trader makes any disbursement for the purposes of his trade. He pays rent for his business premises in the capacity of “tenant”, rates in the capacity of “occupier”, wages in the capacity of “employer”, the price of goods in the capacity of “buyer”. But if he has become tenant or occupier of those particular premises, employer of those particular servants or buyer of those particular goods solely for the purposes of his trade, the money which he has expended in any of the capacities so labelled is a deductible expense in computing the profits of his trade.’

It does not matter whether the trader chooses to do something, or whether they are required to do it by law; the test to consider is simply whether the activity is being carried on as part of the trading activities.

Diplock LJ was commenting on the statutory test imposed on expenditure; that expenditure has to be wholly and exclusively incurred for the purposes of the trade. It is reasonable to say that expenditure that satisfies this test has to be part and parcel of the trade; that is, it has to fall within the ‘scope of the trade’.

The scope of the trade is therefore a broad umbrella encompassing many and all the activities of the trade.