> ## Content Index > Fetch the complete content index at: https://www.sbtfpublishing.co.uk/llms.txt > Use this file to discover other available public pages before exploring further. # Is there a trade? - URL: https://www.sbtfpublishing.co.uk/is-there-a-trade/ - Published: 2026-11-01T12:50:18.000Z - Updated: 2026-11-01T12:50:18.000Z - Author: SBTF Publishing Ltd Sarah Bradford explains how to determine whether a trade exists Trading profits are charged to tax by ITTOIA 2005, Pt. 2\. For there to be trading profits, there needs to be a trade. The tax legislation gives little guidance as to the meaning of ‘trade’; ITA 2007, s. 989 and CTA 2010, s. 1119 say simply that trade ‘includes any venture in the nature of trade’. Consequently, it has been left to the courts to establish what amounts to a ‘trade’ or ‘trading’. It should be noted that although the statutory definition (which includes any venture in the nature of trade) is wide enough to allow isolated transactions ( *IRC v Fraser* (1942) 24 TC 498) and speculative adventures yielding an unlikely profit ( *Wisdom v Chamberlain* (1968) 45 TC 92) to fall within the charge on trading profits, this will not be the case for every isolated transaction or speculative adventure. ### The badges of trade Each case in which it is necessary to establish whether there is a ‘trade’ must be considered by reference to its own facts. However, an approach of the courts has been to look for the presence or absence of common factors or characteristics of a trade. These are the ‘badges of trade’. The case law was reviewed in 1955 by the Royal Commission on the Taxation of Profits and Income which identified six badges. Since then the concept has been refined and enlarged. HMRC’s Business Income Manual at BIM20205ff sets out the current badges of trade and contains guidance on each badge. ### Profit-seeking motive An intention to make a profit supports trading but by itself is not conclusive. Evidence that the sole object of acquiring an asset is to re-sell it at a profit without any intention of holding it as an investment may suggest that a trade is being carried on, but is not necessarily a decisive factor; rather it must be taken into account along with other factors. If it is determined that a trade is being carried on, any profits are taxable as trading profits, even if there was no intention to make a profit. ### The number of transactions Systematic and repeated transactions will support the assertion that there is a trade. Although an isolated transaction can amount to a trade, the systematic repetition of a transaction is indicative of a trade. Consideration should be given not only to the number of transactions, but also to the frequency with which they are carried out. For example, other things being equal, it is more likely that there is a trade if ten transactions are carried out each year than if there are only two transactions each year. In their Business Income Manual at BIM20235, HMRC point out that the case for the existence of a trade is strengthened if there is a series of related transactions at not too great intervals, presenting the appearance of continuous activity. By contrast, there is less likely to be a trade if the transactions are irregular, in different types of property and spread over a number of years. In deciding whether a particular transaction is part of a trade, later transactions of the same type can be taken into account. The first transaction on its own may not appear to be a trade, but when later transactions are taken into account, it may become clear that the first transaction was part of the trade. All trades must start with a first transaction. ### The nature of the asset If the asset is of such a type or amount that it can only be turned to advantage by a sale then that would tend to indicate a trade. This is less likely to be the case for investments bought to yield an income or assets bought for personal enjoyment or ‘pride of possession’. This is a key badge of trade as the nature of the assets can be of great, or even decisive, importance. Some assets are generally realised only by way of trade and where there are transactions in such assets, the existence of a trade is rarely in doubt (BIM20245). Difficulties arise in relation to investments, such as shares, that usually but not necessarily yield income, assets purchased for personal use or enjoyment, such as a painting or a classic car, and fixed assets for a confirmed trade. Where an asset yields an income, such as rent or dividends, the initial presumption is that it is an investment. The quantity purchased can also indicate whether a trade exists. In *IRC v Fraser* (1942) 24 TC 498, the purchase of whisky in quantities that were far in excess of anything which could be used by the individual or his family or friends weighed in favour of there being a trade. Similarly, in *Rutledge v IRC* (1929) 14 TC 490 transactions which involved the sale and purchase of one million rolls of toilet paper were indicative of a trade. However, while purchases in quantities in excess of normal non-trade use may be a factor, other badges of trade must usually be present to establish the existence of a trade. ### Existence of similar transactions or interests Transactions that are similar to those of an existing trade may themselves be trading. Where a trade already exists, a similarity to the transactions of the existing trade may point towards the transaction being a trading transaction. The courts consider other connections to a person’s main trade. For example, the purchase of antique silver by an antique dealer is more likely to be a trading transaction than a one-off purchase of antique silver by a gardener. ### Changes to the asset Was the asset repaired, modified or improved to make it more easily saleable or saleable at a greater profit? What happens to an asset pending resale may be relevant in establishing whether there is a trade. Changing an asset by processing or adapting it to make it more marketable are actions typical of trading. Breaking down assets into smaller lots to facilitate sales may also suggest trading. In *Cape Brandy Syndicate v IRC* (1921) 12 TC 358, a large quantity of Cape brandy was expertly blended with French brandy, re-casked and sold in numerous lots. This was sufficient for the Commissioners to find that a trade was carried on. However, it should be noted that expenditure on an asset after purchase and before sale is not always a strong indicator of trading. For example, it would be normal for the owner of an asset to undertake maintenance and repairs, and expenditure of this nature would not be a strong indicator of trading. The absence of modifications is a neutral factor and not an indicator that there is no trade. ### The way in which the sale was carried out Was the asset sold in a way that was typical of trading organisations? Alternatively, did it have to be sold to raise cash for an emergency? Carrying out the transactions in the same way as those of an undisputed trader is a pointer towards a trade. In *IRC v Fraser* (1942) 24 TC 498, the fact that the whisky in question was sold in the same way as in the course of an ordinary trade was an important pointer in favour of the finding that Fraser was trading. The way in which the sale is secured is relevant in establishing whether there is a trade. Any form of organised activity, such as a marketing or advertising campaign, is evidence in favour of trading. In *Martin v Lowry* (1926) 11 TC 297, a large quantity of linen was purchased with the intention of reselling it at a profit. To this end, a large and skilled organisation was set up for disposing of the linen in smaller quantities, including the establishment of a sales office, the employment of expert staff and extensive advertising. This was an important factor in the court determining that there was a trade. The absence of expected business systems may be a pointer against trading. ### The source of finance Was money borrowed to buy the asset? Could the funds only be repaid by selling the asset? Where the purchase of an asset is made from the resources of an existing trade this may suggest that the purchase is by way of a trade. However, if an asset is purchased from the sale of an investment, this may suggest that the taxpayer is simply changing investments. ### Interval between purchase and sale Assets that are the subject of a trade will normally, but not always, be sold quickly. Thus, the intention to sell an asset shortly after purchase will support trading, while an asset that is to be held indefinitely is less likely to be the subject of a trade. In *Wisdom v Chamberlain* (1968) 45 TC 92, this was a factor in favour of trading. ### Method of acquisition Assets acquired by way of inheritance or as a gift are less likely to be the subject of a trade. Where an asset was acquired by purchase, correspondence leading up to the purchase may give a clue as to whether the intention is to resell the asset or hold it indefinitely. Where there is no evidence of the intention to trade, the transaction should be considered objectively to determine its nature. ### Look at the overall picture The badges will not be present in every case, and where present, some may indicate trading while others may not. The presence or absence of a particular badge on its own will not provide a conclusive answer as to whether there is a trade. Rather, it is the overall impression formed from consideration of the badges which answers the question as to whether there is a trade. ### News in Brief ### Autumn Budget The Chancellor, John Healey, presented his first Budget on Wednesday 28 October 2026\. Details of the measures applicable to small businesses and their advisors are outlined in the Budget Supplement which will be emailed and posted to subscribers. ### MTD quarterly update Traders and landlords within Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) must submit their second quarterly update for 2026/27 to HMRC by 7 November 2026 using software that is compatible with MTD for ITSA. The update will comprise a summary of income and expenses for the quarter to 5 October 2026 where tax quarters are used or for the quarter to 30 September 2026 where calendar quarters are used. Guidance on sending quarterly updates can be found on the Gov.uk website at [www.gov.uk/guidance/use-making-tax-digital-for-income-tax/send-quarterly-updates](https://www.gov.uk/guidance/use-making-tax-digital-for-income-tax/send-quarterly-updates?ref=sbtfpublishing.co.uk). **Comment:** *MTD for ITSA applies from 6 April 2026 to traders and landlords with combined trading and property income (before the deduction of expenses) of £50,000 or more in 2024/25.* ### First use of MTD for ITSA HMRC have updated their guidance on using MTD for ITSA for the first time. The guidance explains what MTD for ITSA is, how it works with Self Assessment and what traders and landlords within MTD for ITSA need to do. The guidance also contains a useful timetable for the first year within MTD for ITSA. The updated guidance can be found on the Gov.uk website at www. gov.uk/guidance/use-making-tax-digital-for-income-tax/using-making-tax-digital-for-income-tax-for-the-first-time. ### Getting ready for MTD in 2027 From 6 April 2027, sole traders and landlords who had combined trading and property income of £30,000 or more (before deduction of expenses) in 2025/26 will need to comply with MTD for ITSA if they are not already doing so. HMRC have reminded affected traders and landlords to get ready for MTD for ITSA as there is less than six months until their start date and are encouraging them to sign up and start preparing. It is expected that around 1,077,000 sole traders and landlords will need to join MTD for ITSA from 6 April 2027. More details can be found in an HMRC press release which is available on the Gov.uk website at [www.gov.uk/government/news/sole-traders-and-landlords-earning-more-than-30000-urged-to-act-now](https://www.gov.uk/government/news/sole-traders-and-landlords-earning-more-than-30000-urged-to-act-now?ref=sbtfpublishing.co.uk). **Comment:** *For more information on identifying clients who will need to join MTD for ITSA from 6 April 2027, please see the article on p. 3 of the October 2026 issue of Small Business Tax & Finance.* ### MTD quarterly update support HMRC are offering support on Saturday 7 November 2026 from 9am to 3pm through their Self Assessment Enquiries Helpline (0300 200 3310) to taxpayers who need assistance with submitting their second quarterly update, which is due on that date. ### Self Assessment tax returns Where a client needs to file a Self Assessment tax return for 2025/26, this must be filed online by 31 January 2027\. Agents are advised to contact clients to ask them to provide any outstanding information as soon as possible. This is particularly important where clients will need time to gather information from third parties, banks and investment providers. HMRC have also reminded agents that filing clients’ returns ahead of the 31 January deadline can help them to: - spread their workload; - identify missing information early and reduce the pressures associated with the peak filing period; - provide their clients with certainty about their tax position and give them more time to plan for any payment which is due by 31 January 2027; and - get ahead with their MTD obligations. More information on the benefits for agents of filing client returns ahead of the deadline can be found in issue 148 of HMRC's *Agent Update* publication which is available on the Gov.uk website at [www.gov.uk/government/publications/agent-update-issue-148](https://www.gov.uk/government/publications/agent-update-issue-148?ref=sbtfpublishing.co.uk). **Comment:** *Where a client owes less than £3,000 and has PAYE income, the tax that they owe can be paid through PAYE if their return is filed by 30 December 2026.* ### HMRC encourage early filing HMRC have published a press release advising taxpayers that ‘starting early is the key to less stress around Self Assessment’, encouraging them to file their 2025/26 tax return well ahead of the 31 January 2027 deadline. The press release, which was published ahead of World Mental Health Day on 10 October, revealed that a survey of the digital habits of 5,200 taxpayers found that more than 26% said that they experienced anxiety when tax and financial deadlines were approaching. The press release contains tips to avoid stress and anxiety around Self Assessment, including starting early to allow time to complete the return in manageable bite-size chunks and having all records and personal income details to hand. Taxpayers are also encouraged to budget for their tax bill and plan in advance how they are going to pay it.