Trading companies

My brain is not letting me stop researching this...

Didn't find your answer?

Apologies for the insanely basic quesition...

So... for the purpose of BADR, does a 'trading company' include a company carrying out a profession?  I'm thinking Insurance Providers.

I am going in loops in my reading, a trading company is a company carrying on trading activities (activities that it carries on in the course of or for the purposes of its trade), and whose activities do not include to a substantial extent activities other than trading activities.  Every definition of a trade I find either references somewhere else or gives a vague 'as per the ITA 2007'. 

Replies (19)

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By WhichTyler
01st Oct 2020 12:09

Does it provide goods or services in return for £££ in order to make a profit?

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paddle steamer
By DJKL
01st Oct 2020 12:18

Does that work as a definition?

We lease our property to others, that provides the tenant with a right to use the property (a service similar to say leasing a car by function), yet it is not a trade (though it is a business).

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By Tax Dragon
01st Oct 2020 12:16

I really like insanely basic questions.

They show the person doing the work is thinking.

Have you read s169S? Does that help?

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By The Dullard
01st Oct 2020 12:24

S 169S doesn't get referred to in the (relatively short) "loop". The S 169S definition only applies to material disposals falling within s 169I(2)(a) or (b), and not (c).

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By Tax Dragon
01st Oct 2020 12:27

I missed the A.

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By Constantly Confused
01st Oct 2020 12:27

Tax Dragon wrote:

I really like insanely basic questions.

They show the person doing the work is thinking.

Have you read s169S? Does that help?

I have now :)

Though I've just ended up at "includes any venture in the nature of trade" per ITA 2007 s989 (which is at least better than when all the other references were just "See ITA 2007", but still not convincing me I'm good).

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By The Dullard
01st Oct 2020 12:22

A trade's an adventure in the nature of a trade. S 165(14) is clear that trade includes a trade, profession or vocation.

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By Tax Dragon
01st Oct 2020 12:31

You missed the A too... you mean s165A(14)

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By Constantly Confused
01st Oct 2020 12:33

The Dullard wrote:

A trade's an adventure in the nature of a trade. S 165(14) is clear that trade includes a trade, profession or vocation.

Thanks, with the additon of the A that is the page I wish I'd seen some time ago.

Do you think my bosses will notice if I just hide under my desk for a bit?

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By Tax Dragon
01st Oct 2020 12:42

Hold your head high I say for asking the Q (though the A this time is as easy as getting from A* to A** via A***)

* S169SA
** S165A
*** Sch 7ZA

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By Constantly Confused
01st Oct 2020 13:43

Tax Dragon wrote:

Hold your head high I say for asking the Q (though the A this time is as easy as getting from A* to A** via A***)

* S169SA
** S165A
*** Sch 7ZA

Well when you put it like that it seems so easy ;)

I think my brain isn't firing properly today... thanks for your patient answers.

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Red Leader
By Red Leader
01st Oct 2020 14:33

The Dullard wrote:

A trade's an adventure in the nature of a trade. S 165(14) is clear that trade includes a trade, profession or vocation.

Schedule D Cases I & II !
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By Tax Dragon
01st Oct 2020 14:48

Red Leader wrote:

The Dullard wrote:

A trade's an adventure in the nature of a trade.

I still haven't seen the relevance of s989 - if that's what Dulls was referring to - to the question.

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By richard thomas
01st Oct 2020 15:52

A "trading company" for the purposes of s 169I(2)(c) and (6)(a) TCGA 1992 has the meaning given by s 169SA and Sch 7ZA.

Para 1(1)(a)(i) Sch 7ZA provides that for the purposes of s 169I(6)(a) "trading company" has the meaning in s 165.

Section 165(8)(aa) then says that it has the meaning in s 165A.

Subsection (3) of that latter section says it means a company carrying on "trading activities".

"Trading activities" are defined in subsection (4) to mean activities carried on in the course of a trade or for the purposes of a trade plus other more peripheral things.

Section 165A(14) says that "trade" means anything which is a "trade, profession or vocation" within the meaning of the Income Tax Acts.

There is however no definition of either "profession" on its own, or of "trade profession or vocation" as a phrase. So it has its ordinary meaning subject to any case law.

In Durant v CIR 12 Tax Cases 245 the Court of Appeal held that an insurance broker does not carry on a profession for the purposes of the Excess Profits Duty in World War 1.

But you say that the business is "insurance provider". I would naturally take that to mean an insurance company which whatever else it does carries on a trade, but I doubt that any insurance company is an individual's company within the meaning of the BADR legislation, so I am at a bit of a loss about what the company actually does.

But even if the company is providing the services of a professional within the normal meaning of that word it is carrying on the trade of providing them. And if they not professionals in the normal sense a fortiori is it a trading company for BADR.

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By whitevanman
01st Oct 2020 19:32

I would disagree with you, ever so slightly, with regard to Durant.
The SC's held that, in the specific circumstances, the activities carried on by Durant did not amount to a profession for the EPD purposes. When you read what he did, it was quite different to what we now call an Insurance Broker. I suspect that a modern day tribunal might reach a different conclusion (as indeed might a different SC at the time). It is a question of fact.
The CofA held that there was evidence on which such a finding could be made and they were not entitled to disturb that finding.
Of course it mattered in the specific case but would not affect the OP's client because whether a profession or trade (or indeed vocation) the result would be the same (as, I think, you conclude).

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By Tax Dragon
02nd Oct 2020 08:38

I think either you are missing the insanely simple answer or there is more learning I can derive from this discussion (otherwise I would let it rest here).

Annex 1, Explanatory Notes, CTA2009:
Change 2: Trading income: omission of references to a company carrying on a profession or a vocation: section 35 (and other sections)
This change omits references to a profession and to a vocation where the source legislation refers to the carrying on by a company of a trade, profession or vocation. The change is reflected in numerous sections in Part 3, the trading income Part. It is included in the origins of the main provisions affected.

I haven't delved back further into history than that, but the previous incarnations of the law would presumably have been the ICTAs - income and corporation taxes - which would have needed to refer to professions and vocations for the benefit of those liable to income tax. When these two taxes divorced, there was no need to carry the profession and vocation bit over into the CTAs. Why? Sadly the Explanatory Notes don't live up to their name - they don't explain. But I guess it's because companies do not have professions or vocations.

TCGA still applies to individuals and companies so needs to mingle the two sets of rules (which sadly leads to muddled thinking). Ultimately, s165A(14) turns out to be a complete irrelevance. (In relation to companies.) As, I'm pretty sure, is Durant (though I have no knowledge of the case and must salute you and Richard for your considerable knowledges).

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By whitevanman
02nd Oct 2020 09:45

Fully agree your analysis and have to say I have never been in any doubt that a company cannot carry on a profession or vocation. As Richard says, a company can carry on the trade of providing professional services (but the exercising of the profession is the role of the professional person employed for that purpose).
My comments on Durant were merely a slight correction in case Richard's comment should imply that it was law that, an insurance broker could not be a profession(al). I thought the comment might raise some doubt or question in the mind of the OP since Richard also commented about not knowing what exactly the client did.
As you have correctly identified, it really makes no difference because, whatever the activities, they cannot be a profession or vocation when carried on by a company but will, almost invariably, amount to the carrying on of a trade ( and therefore be trading activities for the purposes of the OP).

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By Tax Dragon
02nd Oct 2020 10:38

We have a thinking OP here. I'm sure Richard's comment would have raised no material doubt or question in his mind.

But if we're being so very careful, I better confirm that (as you and others know, but a casual reader might not), when I said "Ultimately, s165A(14) turns out to be a complete irrelevance. (In relation to companies.)" I meant of course only the reference therein to professions and vocations. The definitions in s165A(14), and the requirement in s165A(14) that the trade be "conducted on a commercial basis and with a view to the realisation of profits", are relevant to companies as to non-companies.

So, @DJKL: yes, WhichTyler was correct.

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By Tax Dragon
01st Oct 2020 16:21

I really like insanely basic questions. Did I say?

Not only do they show the person doing the analysis is thinking about it, but very often the answer turns out to be insanely... let's say educational.

What I've (just) learnt/realised: companies can't have vocations (surely?). I doubt they can have professions. They can have a trade of providing professional services.

Superb. Thank you, Richard, you have made my day.

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