CH 1 - Budges of Trade

Question 1

TRADING ecompasses ?
Sell of asset might result in ?

Answer 1

Trading income encompasses income from a trade, profession or vocation.

It is important to consider whether a trade is being carried on, because the disposal of an asset might result in either a trading profit or a capital gain.

If an asset is bought for personal use or as an investment, any future disposal is likely to be dealt with under the capital gains provisions rather than as a trade.

Question 2

List the Badges of Trade

Answer 2

1. Financing arrangements Wisdom v Chamberlain (buing on short term loan unable to service interest payment)
2. Repetition/frequency (number of similar transactions) Pickford v Quirke (mill sold interior frequently)
3. Organisation (existence of a sales organisation) Cape Brandy Syndicate
4. Gap (length of time between original ownership and sale)
5. Similar trading activities (whether there is a connection with an existing trade)
6. Profit-seeking motive (must demonstrate motive then existence of profit)
7. Alterations/modifications to sell an asset
8. Way the asset was acquired and the reason for sale
9. Nature of the asset Rutledge v CIR (Comissioners of Inland Revenue) (1mil toilet rolls)

Question 3

Land transactions questions to define trade; is the tax payer…

Answer 3

a) Is the taxpayer investing or dealing? Marson v Morton ( trading as modified land by way of applying for planning permission)

b) Is the taxpayer a resident in the property or a developer?
Kirky v Hughes (trader rebuilding houses)
Tyalor v Good (buy and sell with intention to live in it)

Question 4

When a 1st transaction ceases to be capital transaction?

Answer 4

When a series of transactions are treated as trading, this will taint the first time such a transaction was carried out so that it can no longer be regarded as a capital transaction.

Leach v Pogson (purchased driving school sold serveral times)

Question 5

When share dealing is a trade

individual is subject of..

Answer 5

Private individuals (who are not share dealers) are usually subject to capital gains tax on the disposal of shares regardless of how often they buy and sell shares.

However, in extreme cases they may be treated as trading.
Similarly, companies may trade in shares.

Salt v Chamberlain (capital in nature unless done under registered share dealer)

but* Akthar Ali v HMRC* can be classed as trading (determins on facts of individual)

or company Lewis Emanuel & Son Ltd v White (diversify in shares)

Question 6

ANTI-AVOIDANCE to Determine Trade

If taxpayer is not trading but main reason for………. than its .. subjject to

in terms of land

Answer 6

Where a taxpayer is not trading but one of the main reasons for acquiring or developing land is to make a profit from disposal, any profits **will be treated as trading profits ** (rather than a capital gain) and will be subject to income tax.

Question 7

which receipts are TAXABLE / NON-TAXABLE

Answer 7

Wholly unexpected and unsolicited amounts are not taxable.

However, if amounts are expected then they will be taxable.

Question 8

1. Financing arrangements * name the case

Answer 8

Wisdom v Chamberlain (buing on short term loan unable to service interest payment)

Question 9

2. Repetition/frequency (number of similar transactions) * name the case

Answer 9

Pickford v Quirke (mill sold interior frequently)

Question 10

3. Organisation (existence of a sales organisation) * name the case

Answer 10

Cape Brandy Syndicate

Question 11

9. Nature of the asset * name the case

Answer 11

Routledge v CIR (Comissioners of Inland Revenue) (1mil toilet rolls)