hnd accounts

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Topics: Value added tax
Outcome 5
Section 1 Badges of Trade
Firstly it is important to determine if Ali is trading as annual profits from trade or non-trade are taxed under different schedules. There is no single test for trade; in determining if trade has occurred there are six badges which must be considered, a brief description of each badge and an outline of how it affects Ali’s circumstances is outlined below.
Subject Matter
If the asset sold might be for personal enjoyment or investment e.g work of art or shares profit, May be capital gain. As Ali is buying the cars with the intention of selling them on, this would be seen as trading.
This should be applied for Ali’s circumstances.
Length of ownership
If the asset(s) are purchased and resold within a short period of time, courts are more likely to consider it trade as in Wisdom V Chamberlin (1968). As Ali buys the vehicles and resells them within a short period of time, it would be considered trade under this badge.
This should be applied.
Frequency of Transactions
If a transaction is repeated it is more likely to be deemed trading (this does not apply to quoted securities). As in Pickering V Qurke (1927). As Ali has carried out several transactions this would be considered trading.
This should be applied.
Supplementary Work If there is there is sufficient evidence to prove additional work to make the asset more saleable, it is deemed as trading. As in Cape Brandy Syndicate V IR Comrs (1921). As Ali was both carrying out mechanical work and commissioning body work to enhance the vehicles before selling them on, this would be seen as trading.
This should be applied.
Reason for Sale
Under this badge, if the sale is forced e.g by requirement for extra cash this is less likely to be considered trading. If sale happens in normal course of events its trading. As Ali had no necessity to sell the vehicles, it was a normal course of events, it would be deemed as trading.
This should be applied.
Motive
If a

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