Dog-breeding - trade or not?

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I have been approached by someone who provides dog grooming services on a casual basis (under the £1k trading allowance, so does not report this income currently).

They have also recently had a litter of puppies, this is the first one they have had and it will not be done on a regular basis - the dogs bred were her own.

The puppies were not advertised, they were sold only to friends or kept by the breeder.

My question is, would you consider this a trade and therefore should it be reported under self-assessment? I would be interested to hear other's opinons.

Many thanks.

Replies (32)

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DougScott
By Dougscott
09th May 2024 11:00

I wouldn't treat it as a trade if there is no intention to trade. In any event in my experience the costs of breeding (if pedigree dogs) are pretty high.

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By jasonowsky
09th May 2024 11:13

If there's income above 1k in a year, then it's undoubtledly a trade. If money exchanges hands, it's a good indication.

In theory, tuck shops at school are a trade. Thankfully with the 1k allowance, it's been recognised everyone should be able to sell a small amount without having to declare.

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Replying to jasonowsky:
By Ruddles
09th May 2024 15:13

jasonowsky wrote:
If there's income above 1k in a year, then it's undoubtledly a trade.

Nonsense
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Replying to jasonowsky:
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By Cylhia66
10th May 2024 05:52

jasonowsky wrote:

If there's income above 1k in a year, then it's undoubtledly a trade. If money exchanges hands, it's a good indication.

You should read about hobbies. Money exchanges hands, but they're definitely not a trade.

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Replying to Cylhia66:
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By More unearned luck
10th May 2024 18:45

"You should read about hobbies. Money exchanges hands, but they're definitely not a trade."

So what?

Labelling a source of income as a hobby (even if done accurately) doesn't make it exempt from income tax, although the miscellaneous income allowance may be available.

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Replying to More unearned luck:
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By Cylhia66
10th May 2024 19:01

Imagine someone who has a hobby such as buying toys. Buys a lot of them on a regular basis. To make sure this hobby doesn't cost too much they sell the toys back on via eBay.
They always sell at a loss.
Do you think it's loss making trade and that HMRC should issue a tax rebate?

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Replying to Cylhia66:
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By More unearned luck
11th May 2024 18:28

No. See s 66 ITA 2007.

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Replying to More unearned luck:
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By Cylhia66
12th May 2024 10:01

So, you're saying that a hobby is a trade with no commercial basis but that it is subject to Income Tax if it is operated with a view of making profit. Got it. However, I can't imagine that this would often be the case, I guess it could happen.

It seems obvious to me that if the aim is to make a profit then it's not a hobby. Wouldn't you agree? This would deem my initial statement correct.

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Replying to Cylhia66:
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By FactChecker
12th May 2024 13:58

s 66 ITA 2007 is actually about 'Restriction on relief unless trade is commercial' - so, although a logical inference, it makes no mention of "a hobby is a trade with no commercial basis but that it is subject to Income Tax if it is operated with a view of making profit".

But either way, I don't follow your broad-brush "if the aim is to make a profit then it's not a hobby".
Although murky waters, I guess it depends on whether the 'intended profit' applies to every transaction (making it in my mind the primary aim) ... or it only applies to a few transactions (sufficient to cover the costs of the hobby thereby making it a 'free' activity)?
Of course that then introduces the need to ensure that those 'costs being covered' are solely those incurred by carrying out the hobby, and don't seep into a slight subsidy of the hobbyist's general life.

Seems a little odd that if you intended/hoped to make a small profit but actually made a small loss then you can claim relief; but if you only intended to cover your costs and got it slightly wrong then you can't. But that's life as they say!

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Replying to FactChecker:
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By Cylhia66
12th May 2024 14:16

I feel like you are slightly arguing with my statements but at the same time we seem to be saying the same thing. So I'm not too sure what to say now.

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Replying to Cylhia66:
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By FactChecker
12th May 2024 15:10

Maybe I should've been a lawyer, then (that's how I often feel after talking to them)!

I guess what I was trying to point out was that there doesn't seem to me to be a vast gulf between your and Mul's positions ... once/if you accept that your statement was a bit 'absolute', whereas the world of shades of grey awaits us around every corner.

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Replying to FactChecker:
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By Cylhia66
12th May 2024 15:54

Turns out I am famous for not being very nuanced in the way I communicate. Therefore, ok, I admit guilt of my initial statement being too uncompromising.

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Replying to Cylhia66:
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By Tax Dragon
12th May 2024 15:24

See s687 ITTOIA 2005.

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Replying to Tax Dragon:
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By FactChecker
12th May 2024 15:54

Thanks ... think I'd lost sight of the ping-pong ball on its travels through this thread ...

- "If there's income above 1k in a year, then it's undoubtledly a trade. If money exchanges hands, it's a good indication."

- "You should read about hobbies. Money exchanges hands, but they're definitely not a trade."

- "Labelling a source of income as a hobby (even if done accurately) doesn't make it exempt from income tax, although the miscellaneous income allowance may be available."

(then a non sequitur):
- "Imagine someone has a hobby such as buying toys. .. They always sell at a loss. Do you think it's loss making trade and that HMRC should issue a tax rebate?"

- "No. See s 66 ITA 2007" - merely repudiating that last question!

- "So, you're saying that a hobby is a trade with no commercial basis, but that it is subject to Income Tax if it is operated with a view of making profit."

- "See s687 ITTOIA 2005" - pointing out that "Income tax is charged" isn't dependent on there being 'a view of making profits'

So ... lack of intent to make a profit removes the option to claim tax relief, but the generation of profit (even if unintentional) doesn't remove the liability to IT. Correct?

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Replying to FactChecker:
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By More unearned luck
12th May 2024 21:26

"So ... lack of intent to make a profit removes the option to claim tax relief, but the generation of profit (even if unintentional) doesn't remove the liability to IT. Correct?"

Not quite (if lack of intent = uncommercial*). The losses of uncommercial trades can still be carried forward for as long as the trade continues and set against future profits of that trade. it is carrying back and 'sideways' relief that is denied.

*It doesn't. Some entrepreneurs know from the outset that they will have losses in the first few years. There is a special relief for losses made in the first four years. That they don't intend to make a profit until, say, year 5 might not put the kibosh on relief against other income. Because constant losses does not necessarily equal uncommercial there is a special rule for so-called 'hobby' farmers.

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Replying to More unearned luck:
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By FactChecker
12th May 2024 22:04

Thanks ... for clearing up with your usual precision (and patience).

I sometimes despair that my brain "ain't wot it used to be" ...
... I specifically noted earlier that "s 66 ITA 2007 is actually about 'Restriction on relief unless trade is commercial'" - and then sloppily converted 'restriction' into "removes the option to claim tax relief". 'nul points' as they say elsewhere.

And I didn't know about the special rule for so-called 'hobby' farmers ... sounds as if Clarkson still has some friends with influence!

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Replying to FactChecker:
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By More unearned luck
13th May 2024 11:07

Read on past s 66. Section 67 works against farmers. In the case of Clarkson, he might argue that s 67(3)(a) applies (the 'larger undertaking' includes the TV prog).

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Replying to Tax Dragon:
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By Cylhia66
12th May 2024 15:55

Tax Dragon wrote:

See s687 ITTOIA 2005.

I am scratching my head trying to figure out where you are trying to take me.

Edit: FactChecker has just clarified this now.

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Replying to Cylhia66:
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By More unearned luck
12th May 2024 16:19

"So, you're saying that a hobby is a trade with no commercial basis..." No; hobbies include things like bird spotting, so the words you are putting in my mouth give an inadequate definition of 'hobby'.

"It seems obvious to me that if the aim is to make a profit then it's not a hobby. Wouldn't you agree?" Again, no. Try Googling the expression "my hobby is my work" and see how many hits you get. But motive is one of the badges of trade, perhaps the most significant one.

Hobby or trade is a false dichotomy and is not the place to start from.

If the taxpayer has flogged something at a profit, the first question is: is it an income or capital profit? If the answer is income the next question is: is the profit exempted from tax?

If there is no such exemption then subject to the trading & Miscellaneous income allowance, the profit will be taxable.

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Replying to More unearned luck:
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By Cylhia66
12th May 2024 16:33

Very well explained regarding how to consider earnings to begin with.

It goes without saying that when I was referring to hobbies I didn't have in mind bird spotting or vocational careers. Although technically you are right, they are hobbies. But obviosuly neither are the sort of hobbies I was talking about. And I know you knew but chose to add an extra layer of confusion.

In essence, I think we agree.

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Replying to jasonowsky:
By JCresswellTax
15th May 2024 10:24

Think you need to have a read at the badges of trade rules.

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Out of my mind
By runningmate
09th May 2024 11:58

Be aware of the need for a dog breeding licence in certain circumstances
https://www.gov.uk/guidance/dog-breeding-licence-england
RM

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Replying to runningmate:
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By LDS24
09th May 2024 12:01

Thank you - this doesn't apply as it's only one litter in 12 months (and longer than that) and none of the puppies were advertised for sale.

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Replying to lesley.barnes:
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By FactChecker
09th May 2024 15:46

Isn't that just about 'purchase and sale of an asset'?
In which case, leaving aside whether a litter is a single asset or (more likely) it is a number of assets, where's the purchase part of the equation for OP?

As MUL has just said ... it might be or might not be (a trade) - and which of those it is will depend on all the facts.

OP hasn't mentioned the scale of the income - given that I understand the price of puppies (doesn't that sound awful - like a commodity) has increased by several hundred % since the start of Covid, it may be quite substantial?

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By More unearned luck
09th May 2024 15:02

Dog breeding can be a trade. See for example Hook v HMRC TC8859.

Whether (and when) your client's activities amount to a trade is a matter of fact normally determined by assessing the facts against the badges of trade.

If you conclude that there is no trade (yet) that doesn't mean the income is not taxable.

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Replying to More unearned luck:
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By HL86
09th May 2024 21:03

Came here to make the badges of trade comment too!!!

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By David Ex
09th May 2024 16:41

LDS24 wrote:

I have been approached by someone who provides dog grooming services …. They have also recently had a litter of puppies,

Very unusual!

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Replying to David Ex:
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By FactChecker
09th May 2024 17:14

You omitted the rest of the sentence .. "this is the first one they have had and it will not be done on a regular basis".

Presumably they are now insisting that in future Big Ted remains locked up whilst awaiting his turn for grooming - and not allowed to find his own entertainment!

[And yes, I knew what you were hinting at and duly typed a bawdy response .. before deciding to replace it with the above.]

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paddle steamer
By DJKL
13th May 2024 16:04

Maybe we need to consider if this was a planned liaison with a particular dog or mere happenstance and then look at expectation of what might happen with any offspring then arising.

So, if the dog was selected with great care re his bloodline or dog's owner paid for dog's service then we start leaning towards trade though even that is not conclusive, if costs never likely to be recovered re potential end sale prices the trading argument with a view to profit likely collapses.

What is "the Breeder" intending to do with the puppies to be retained is also likely on point?

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@enanen
By enanen
15th May 2024 09:59

It is like an examination question where everyone is correct. I have had two referrals where taxpayers had not declared nor submitted any tax returns but have been found to have sold litters. HMRC use Kennel Club Whelping records for registered pedigree breeders, even 1st time pedigree breeders. Always report and save the client an enquiry.

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By HeatherSimpson
15th May 2024 10:27

I had a dog breeder 'trading' years ago. There were many of the 'badges of trade' such as the buying and selling of 'straws' for mating but it was mostly not very profitable. Now and then a good year of litters or stud fees moped up previous years' losses. I believe that she only registered for self-assessment because she was concerned that a neighbour would dob her in as trading. After many years, we wrote to HMRC to ask that it be treated as a trade and she was left under instructions to get back in touch if puppy sales went over a certain monetary amount.

When small breeders keep their own dogs too, it can be hard to split costs like dog food etc particularly if there are many dogs and they swap from breeding to 'own' as they retire.

As with all potentially 'hobby' businesses, I ask clients to keep records of income and costs, just in case there is ever a query.

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