When is a hobby considered to be a trade?

HMRC is actively searching the internet for evidence of eBay traders who are consistently selling goods on eBay. They are known to be exploring the use of ‘internet robots’ to scour cyberspace!
And this activity is not necessarily restricted to eBay traders. What about car boot sales, sales via classified ads? Which raises an interesting question - when does a hobby become a trade, and more importantly, when do any surplus funds become subject to tax?
Generally speaking if you are selling your own private possessions you will not be trading. However you may be considered ‘in business’ if you habitually buy and sell goods on eBay and/or at car boot events. The list that follows is the published ‘badges of trade’ that HMRC uses when considering this matter.
1. An intention to make a profit supports trading.
2. The number of transactions involved - systematic and repeated transactions support trade.
3. The nature of the goods sold - are the goods only capable of being turned to advantage by being sold? Or do they yield income, or give enjoyment through pride of ownership?
4. Existence of similar trading transactions - was this a one-off transaction or part of a pattern that suggests trading?
5. Changes to the goods - were the goods repaired, modified or improved to sell them more easily?
6. The way the sale was carried out - were the goods sold in a way that indicates trading, or to raise cash in an emergency?
7. The source of finance - was money borrowed to buy the goods? Were any profits to be used to repay the loan?
8. Interval of time between purchase and sale - goods being traded are usually bought then sold quickly.
9. Method of acquisition of the goods - goods acquired by an inheritance, or as a gift, are less likely to be the subject of trade.
As you can see one or more of these cases could apply to most hobbies.
The current penalty regimen adopted by HMRC precludes sticking your head in the sand. Don’t wait for the brown envelope to appear. If you are uncertain about the tax status of your money-making hobby contact us now.
Disclaimer – Please note: The ideas shared with you in this article are intended to inform rather than advise. Taxpayers’ circumstances do vary and if you feel that tax strategies we have outlined may be beneficial it is important that you contact us before implementation. If you do or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.


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