Trading is the exchange of goods or services for a fee. For tax, the law does not specifically define trading, but case law has built up to create a set of indicators or ‘badges’ of trade. The main points to look for are:
- Repetition – where the trading is regular rather than a one-off event.
- Profit motive – generally the profit motive should be present for trading to exist, even though a profit is not always actually made.
- Mechanism for selling – the existence of a shop or catalogue or other means for the sale of the goods or services indicates the existence of a trade.
- Acquisition of items for re-sale – buying goods with the intention of reselling them rather than consuming them will indicate a trade.
- Similarity to existing trades – selling goods or services in the same or a similar way to existing traders.
HM Revenue & Customs (‘HMRC’) may decide that a trade is being undertaken even if only one of the above criteria is fulfilled.