The badges of trade
23/11/2023

The 'badges of trade' tests, whilst not conclusive, are used by HMRC to help determine whether an activity is a proper economic trade / business activity or merely a money-making by-product of a hobby.

Careful consideration needs to be given to deciding whether a hobby has become a taxable trading activity. The approach by the courts in using the badges of trade has been to decide questions of trade on the basis of the overall impression gained from a review of all the badges.

HMRC will consider the following nine issues as part of their overall investigation as to whether a hobby is actually a trade:

  • Profit-seeking motive
  • The number of transactions
  • The nature of the asset
  • Existence of similar trading transactions or interests
  • Changes to the asset
  • The way the sale was carried out
  • The source of finance
  • Interval of time between purchase and sale
  • Method of acquisition.

Even if HMRC consider that the activities in question are a trade, taxpayers can make up to £1,000 per year, tax-free, from their hobby by claiming the trading allowance.


Contact Us

Sussex House
Maple Close
Bexhill-on-Sea
East Sussex
TN39 4SU
Phone: 01424 237825
Email: info@prometheus.tax
Web: www.prometheustax.co.uk

 

Memberships

 icaew small

CTA blueblack

Newsfeed Search