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When does trading commence?

When does trading commence?

If an individual decides that he would like to do up a property and sell it on, then he clearly becomes a property developer.  He then goes to look for properties that are suitable.  This takes a number of week using fuel to visit properties.  He makes telephone calls etc.  He eventually identifies a property which is suitable.  In the process, he has incurred expenditure for aborted legal fees.  However, when does trading commence?

1.  Is it the day he makes the decision?

2.  The day he starts looking.

3.  The day he finds something?

4. The day that he sells the renovated property.

So then when does he become liable to register as self employed and start paying NIC?

Also, in respect of legal fees for the aborted purchase, would anyone agree they are deductible.  Obviously if it was for a property which was to let out then it is capital and cannot be recovered, but this is clearly a trade.  In that case I presume they would be deductible.  After all, if he was doing up and selling on 30+ properties a year and one fell through, then the legal fees would be deductible.

Finally, if the year end comes before the sale, I presume that the loss would be available for either carry back or set off in the usual way. (think HMRC v the rabbit breeder)


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21st Feb 2012 08:11

Trade commences...

.. when he first undertakes activity. There is a case on this somewhere, but don't have the reference to hand.

Abortive costs are definitely deductible.

And, yes, any losses are just the same as losses from any other trade.

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21st Feb 2012 09:40

Don't forget to value your WiP

HMRC might not believe a loss

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21st Feb 2012 10:27

Pre-trading expenditure

I think the case MBK may be thinking of isBirmingham District Cattle By-Products (see BIM70510).  Essentially, you're not (normally) trading until you're in a position to turn out your product, which means you need to have acquired some raw materials (like a property to develop).  That points to your time 3.

For a "rinse and repeat" type of trade though, it is arguable that it starts sooner (time 2, not time 1).  For the expenditure that you mention though, it will qualify as pre-trading expenditure, if HMRC argue that trading started later.

Take a look through BIM70500 et seq.

I agree with the others on the other points.

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