Selling goods or services? It’s vital to know if HMRC considers this a business. From regular sales to earning commissions, their rules on ‘trading’ impact your tax obligations. Here’s a simple guide to help you stay compliant and avoid pitfalls.
If you are selling goods or services, you need to determine whether this constitutes a business. According to HMRC’s guidance, you are required to establish a business if you 'trade' in goods or services.
While not an exhaustive list, HMRC suggests you are likely to be considered as trading if you:
- sell regularly to make a profit
- make items to sell for profit
- sell items on a regular basis, either online, at car boot sales or through classified adverts
- earn commission from selling goods for other people
- are paid for a service you provide
If you only occasionally sell items then you are probably not trading. However, there is no statutory definition of ‘trade.’ The only statutory clarification is that ‘trade’ encompasses a ‘venture in the nature of trade.’ Consequently, the courts have defined what constitutes a ‘trade’ through their rulings, which serve as guidance when disputes arise.
In complex cases, HMRC may use 'badges of trade' tests to assess whether an activity is a legitimate business or just a money-making by-product of a hobby. While not definitive, these tests will help HMRC make this determination. In most cases, it will be clear if your trade in goods or services is a business.
