������Ƶ

The definition of trading

Trade is defined by statute as including “any venture in the nature of trade”.

Further interpretation of the statutory definition of ‘trade’ has been left to the courts, which have developed a number of tests, known as the ‘badges of trade’, to determine whether an activity is trading or investment in nature.

It should be noted that the definition of trade for income and corporation tax purposes is different from the definition of trading for CGT and IHT. For more on this, see the Conditions for business asset disposal relief and BPR ― the ‘wholly or mainly’ test guidance notes. One important area where the badges of trade is frequently tested in the courts is whether a business is trading or investing in land and property, this topic is analysed further below and in the Property investment or trading? guidance note.

For individuals, the distinction can be more important because of the large difference between the top rate of income tax, which is applicable to trading profits and the top rate of capital gains