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HMRC internal manual

Business Income Manual

Meaning of trade: scope of trade: Golden Horse Shoe (New) Ltd v Thurgood [1933] 18TC280

The point at issue in the case was whether the acquisition costs of dumps of ‘tailings’ were an allowable deduction of the company’s trade for tax purposes, i.e. was the expenditure to acquire a mine to work, or was it to acquire stock in trade.

The company was set up to sell gold extracted from ‘tailings’, i.e. the residuals that remained after the extraction of gold from mined ore, by means of a re-treatment process. The company acquired the rights in certain dumps of tailings and claimed a deduction for the purchase costs.

The company contended that its trade did not include mining, the dumps did not form part of the land on which they were situated, and the expenditure was on raw materials for its re-treatment trade.

The General Commissioners decided that the company was not entitled to the deduction claimed, a view supported by Finlay J in the High Court who thought, at page 294, that ‘… this was analogous rather to a right to mine than to the purchase in bulk of a stock-in-trade’. However, the Court of Appeal held that the expenditure was on stock-in-trade and therefore allowable.

Lord Hanworth quoted Channell J’s comments in The Alianza Company Ltd v Bell [1905] (5TC60 and 172), at page 299, with approval:

‘The question in this case which we have to consider is what is the nature of the adventure or concern which this particular company is carrying on. If it is a manufacturing business, then the procuring of the raw material would not be a capital expenditure. But if it is like the working of a particular mine or bed of brick, earth, and converting the stuff worked into a marketable commodity, then the money paid for the prime cost of the stuff so dealt with is just as much capital as the money sunk in machinery or buildings.’

He also noted, in respect of the ‘tailings’, that ‘They had not to win them from the soil; they had been gotten already’ and that ‘The present facts seem to point to a manufacturing business applied to raw material already won and gotten’.