s66 : “Restriction on [Loss] Relief unless trade is commercial”
(2) the trade is commercial if it is carried on throughout the basis period for the tax year— (a) on a commercial basis, and (b) with a view to the realisation of profits of the trade. (3) if at any time a trade is carried on so as to afford a reasonable expectation of profit, it is treated as carried on at that time with a view to the realisation of profits. (7) this section applies to professions and vocations as it applies to trades
Effect of s66 ITA 2007, ITTOIA & case law is that the intention to trade is the key determinant
s67 : “Restriction on [Loss] Relief for farming and market gardening
1) this section applies if a loss is made in a trade of farming or market gardening in a tax year (“the current tax year”). 2) trade loss relief against general income is not available for the loss if a loss, calculated without regard to capital allowances, was made in the trade in each of the previous 5 tax years (see section 70). 3) this section does not prevent relief for the loss from being given if— (a) the carrying on of the trade forms part of, and is ancillary to, a larger trading undertaking, (b) the farming or market gardening activities meet the reasonable expectation of profit test (see section 68), or (c) the trade was started, or treated as started, at any time within the 5 tax years before the current tax year (see s 69, as well as section 17 of ITTOIA 2005).
Different test applied for farming and market gardening trade – the 5 year rule only applies to these activities…
“ As a seller on eBay, you agree to comply with all applicable domestic and international laws, statutes, ordinances and regulations regarding your use of our service and your listing, solicitation of offers to purchase, and sale of items.
You are also responsible for paying all fees associated with using our service and our website and all applicable taxes.”
How do I decide whether I'm operating as a business? For most business sellers it should be obvious – if you're operating as a business in the real world, and your eBay selling activities are connected with this business, then you should register as an eBay business.
Choose a business account if you:
sell items that you have bought to resell
make items yourself and sell them, intending to make a profit
are a Trading Assistant
buy items for your business on eBay
Choose a private account if you:
sell items that belong to you and that you don't need anymore
buy things for your personal use
A business account means taxable on the profits
A private account means possibly taxable on the profits
You should be consistent in your approach to transactions that may be trading transactions, irrespective of whether they lead to a profit or a loss. However, you should examine critically claims that a trade exists where that claim may have been made to get relief:
that is only available to traders, such as loss relief or retirement relief, or
for the costs of a hobby, or
for investment losses, or
for capital expenses, which are in translated to be revenue deductions using an artificial trading company.
You should, as usual, consider all the facts. Consider whether a profit
is an isolated event.
A taxpayer who wants tax relief for losses, which are not, in truth, trading losses may point to a profit in a particular year to support the trading assertion.
This factor would normally carry little weight if that profit were an isolated event in an overall picture of continuing losses. The profit may be no more than a mere 'flash in the pan', or may even be a contrived event.
“ Almost any asset or activity can be the subject of trading and the question whether a trade exists is primarily a question of fact. It follows that before you can take an informed view you must obtain all the facts relating to the transaction(s) in question.”
An investigative approach is taken. When looking critically at a transaction or transactions you should normally:
interview the person at an early stage to discover:
the history of the transaction and all the background detail which may affect its treatment for tax purposes;
the person's intentions at the moment of acquisition (if the transaction is one of purchase and resale) remembering that the person may have to give evidence regarding that intention before the Commissioners/Tribunal;
obtain copies of all the related correspondence, and other relevant documents such as purchase and sales literature, brochures etc, estimates and invoices for work done on the asset, and the legal documents;
obtain information, including documents, from other tax offices which may bear on the issue - for example, what the vendor and the purchaser on resale said about the transaction;
review critically the assertions made in the light of the evidence available.
You should not take a firm view of the nature of the transaction until after you have completed the above review.
These suggestions do not impose any limitation on imaginative investigation.
The scope of the preliminary work must depend
on the nature and complexity of the transaction,
the circumstances of the case
other sources of relevant information
” In framing your enquiries take account of the 'badges of trade‘”
and any other factors
which may be relevant.
BIM 75740 “Contrived Losses”
Where there is any suspicion that such losses have been created or that the person claiming the loss is for practical purposes not suffering or is not liable to suffer the financial effect of that loss, then the case should be referred to Anti-Avoidance Group (Investigation), preferably before detailed enquiries are made.
Does not intended to apply to cases where losses arising are simply ‘uncommercial’ in the sense that the business could not sustain such losses and be said to be running on a commercial basis.
Review business income … does it match their lifestyle?
Review personal bank statements whenever possible
Ask them about their hobbies & interests
Check whether they write blogs, have internet accounts, advertise on Facebook….etc
Remember that HMRC are able to ask Facebook, Ebay & Amazon for their client lists of personal and business customer accounts to identify online retailers. A wide-ranging enquiry could be undertaken on the same basis as those for the offshore banks area without additional legislation…
Inheritance Tax for assets used in hobbies & pastimes
Assets used in a hobby or pastime which are used in a “trading businesses” are potentially eligible for business property relief
Must have been used in the business for 2 years preceding the chargeable event for IHT
Must not have any binding conditions for sale at the time of the chargeable event
Successions – continuing to be used in the trading business?
For Further Information Contact me at: Andrew McKenzie-Smart Smart Solutions 88 Pollards Oak Road Hurst Green Oxted Surrey RH8 0JW Tel: 01883 715848 Mob: 07952 217249 Email : [email_address] Website: www.smartsolutions-online.co.uk
The illustrations and information presented is produced for your general information. It is based upon our understanding of current legislation and correct at the time that the seminar was prepared and presented. You should contact us before taking any specific action based on the information shown on these slides or any handouts provided as part of the seminar. No responsibility can be accepted for any use made of the illustrations or information presented herewith.
Whilst every effort is made to ensure the accuracy of information contained herein, we cannot accept liability for any reliance placed on these seminar materials and strongly advise that you seek further specific advice relevant to your individual circumstances.