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HMRC internal manual

International Manual

Non-residents trading in the UK: through UK investment managers, brokers or Lloyd’s agents: Brokers

Conditions to be met

The term ‘broker’ applies to those agents who, by the custom of certain markets are entitled, and recognised as being entitled, to act for both purchaser and seller in that market (Bankes, LJ in Wilcox v Pinto 9TC129).

There are four conditions that must all be met before the specific exemption for brokers can apply (ITA07/S835L and CTA10/S1145). These are as follows:

  • The broker must be carrying on the normal business of a broker
  • The transaction must be carried out by the broker in the ordinary course of the broker’s business.
  • The broker’s fee must not be less than customary for that class of business.
  • The non-resident must not, during the same chargeable period, carry out any trading transactions through the broker other than those that are excluded by this rule.

The effect of these conditions is to exempt only those brokers who are acting in the ordinary course of their business on arm’s length terms.

What is a broker?

In order for the independent broker exemption to apply the pre-condition set out in CTA10/S1145(1) needs to be satisfied, that is the exemption only applies if the transaction carried out on behalf of the non-resident is by a UK person acting as a broker.  The term ‘broker’ is not defined in legislation.

In Wilcox v Pinto 9TC129, Bankes LJ gave the word ‘broker’ a specific technical meaning in that it applies to class of persons who, by the custom of certain markets are entitled, and recognised as being entitled, to act for both purchaser and seller in that market.

In a later tax case, Fleming v London Produce Co. Ltd 44TC582, Megarry J in giving his judgement defined ‘broker like qualities’ which gave rise to a key test in English law in defining a broker:

‘….. holds himself out as being ready to work for clients generally, and who does not in substance confine his activities to one principal, or an insignificant number of principals.’

Consequently, a person in the UK will not qualify under English law as a broker (or general commission agent) if he works for only one principal or a small number of principals and does not make himself available for work to clients generally.

Other common characteristics of a broker include:

  • Takes no personal interest, control or possession of the property/product sold or purchased.
  • Earns a commission – normally a percentage of the value of the sale or purchase.
  • Executes transactions based on instruction.