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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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Meaning of trade: mutual trading and members clubs: overview

Mutual trading is an important concept. This is because a mutual trader is not liable to tax on any profits arising from their mutual trade. No taxable profit arises on surpluses from mutual trading. This is as a result of the principle that ‘a person cannot trade with themselves’.

Traditionally the subject has been divided into three broad strands and this is reflected in the cases that have come before the courts:

  • mutual insurance
  • other trading activities, and
  • social and recreational activities.

The first two involve mutual trading whereas the third category strictly does not. The guidance also follows this approach. It is essential to recognise at the outset that if an entity is not trading then there is no question of mutual trading and you do not need to consider the issue.

It is, however, convenient to discuss a number of matters under the broad heading of mutual trading that are not mutual trading but which frequently involve a mutual association. Principal among these being the treatment of members’ clubs.