Friday, 19 June 2009

Am I trading? 2: Applying the badges of trade

In my last article I talked about the Revenue's "badges of trade" which is the system they use to decide whether or not someone is trading.

BUT there can be situations where more than one badge applies but they seem to point in different directions!

For example:

You are a web designer. Your grandad bequeaths you his collection of vinyl LPs. You don't have a LP player so you decide to sell them. It's a large collection, so you sell a few at a time on eBay. Do you have to put the money you make from them on your tax return? Are you trading in LPs?

1) Are you selling them to make a profit? No, you're selling them because you don't have an LP player.

2) Are you selling the same sort of items repeatedly over time? Yes, you are.

3) Are you selling something that didn't give personal enjoyment? No, they did give personal enjoyment to your grandad.

4) Are you selling something that's similar to your own business? No, websites are not similar to LPs.

5) Did you repair, modify or improve the items before you sold them? No, you didn't (apart perhaps from dusting them, but that's cleaning, not repairing).

6) Did you sell the items as a trader might? Difficult one. Traders do use eBay but then so do people who aren't trading.

7) Did you have to borrow money to buy the item, that could only be repaid by selling it? No, you didn't.

8) Did you sell the item quickly? Difficult one again. Yes to some LPs and no to others. But for the collection as a whole, the answer would be No.

9) Did you buy the item? No, you inherited it from your grandad.

So are you trading in LPs?

I make that seven No's, one Yes and one "could be either".

On balance, my answer would be "No, you're not". Not necessarily because you've got more No's than Yes's, but because there are some really compelling No's - in particular, you're not selling the LPs to make a profit, they gave personal enjoyment to the person who gave them to you, and you inherited them, you didn't buy them.

So you're not trading in LPs. That means there's no income tax to pay on the sale of the LPs.

BUT in some circumstances there may be inheritance tax or capital gains tax to pay!

So because the issue of whether or not you're trading is such a grey area, and because there might be other taxes involved, I'd recommend you always take professional advice.

(If I can't help you then I'll usually know someone who can!)

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