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HMRC internal manual

Business Income Manual

Particular trades: pawnbrokers

Sale of pledges

Any unclaimed surplus on the sale of a pledge should be treated as a trading profit on the expiry of the borrower’s right to recover the surplus (Jay’s the Jewellers Ltd v CIR [1947] 29TC274). The sale of unredeemed articles is governed by the Consumer Credit Act 1974. These provide that, if the article is not redeemed before the end of the redemption period, then:

  1. where the redemption period is six months and the article is security for credit not exceeding £75, the property in the article passes to the pawnbroker,
  2. in other cases, the pawnbroker is entitled to sell the article, collect what he is owed out of the net sale proceeds and pay any balance to the borrower. The borrower’s right of recovery will lapse six years after the sale.

Alternatively, where the practice has been to treat the surplus on a sale as arising on the date of sale and any recovery by the borrower as an expense arising on the date of payment to him, it may, if the taxpayer so requests, be continued provided that the basis is adhered to consistently.