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HMRC internal manual

Business Income Manual

Computing the amount to assess: business changes: changes in scale, nature or location of trade: business expansion

Where a trader expands their business there are three possible consequences, depending on the facts.

  1. The new activity represents a new trade in addition to their existing trade (BIM80530)

Factors which would affect whether there were two trades after the acquisition or one are:

  • the amount of central co-ordination and control, and
  • whether staff, stock and customers are common to the two businesses.

If the new activity is a separate trade then the commencement provisions (BIM81045) will apply to the new business. Each business will continue to be treated as a separate trade for tax purposes unless, as a matter of fact, they are merged to form a single trade. Where that happens, the question will be whether the combined business is a new one or not (BIM80595).

  1. The new activity combined with the old represents a completely new trade (BIM80595)

In this situation the acquisition of new activities is on such a scale, or brings about such a change to the nature of the old business, that it means that the old business comes to an end. The combination of the two activities represents an entirely new trade in its own right.

The cessation provisions (BIM81015) will apply to the old business. The commencement provisions will apply to all of the profits from the new business.

  1. The new activity combined with the old represents a continuation of the old trade

If neither of the two previous situations applies then the acquisition of the new activities has no effect on the basis of assessment. The owner is simply carrying on the same trade as before, but on a larger scale.

If the expansion involves the acquisition of another business as a going concern then the question of succession may arise (BIM80620).