HMRC notices

The meaning of trade for tax purposes, often referred to as HMRC’s “badges of trade” test helps determine whether an activity is a genuine business or simply a personal hobby. While the test is not definitive, it provides important guidance on how HMRC views different activities. At some point, what starts as a hobby may evolve into a taxable trade. Understanding this distinction is important in order to assess whether an activity has become commercial in nature, meaning it could be subject to tax.

As part of their investigation into whether a hobby has evolved into a trade, HMRC typically examines the following badges of trade:

• Profit-seeking motive
• The number of transactions
• The nature of the asset
• The existence of similar trading transactions or interests
• Changes made to the asset
• The manner in which the sale was carried out
• The source of finance used
• The interval of time between purchase and sale
• The method of acquisition

It is important to note that there is no statutory definition of the term ‘trade.’ The only statutory clarification available is that ‘trade’ includes a ‘venture in the nature of trade.’ As a result, it is the courts that have provided a definition of what constitutes a 'trade,' and these decisions serve as a framework for guiding HMRC's assessments when disputes arise.

The badges of trade have proven to be valuable indicators in numerous cases, providing practical guidance in distinguishing between a hobby and a taxable trade or business.

When a couple separates or divorces, most attention focuses on the emotional and practical aspects. However, it is important to consider the tax implications of transferring assets, as these can have significant financial consequences if not managed carefully.

It is most important to consider if there are any Capital Gains Tax (CGT) implications. For transfers between spouses or civil partners, the rules changed on 6 April 2023. Couples that separate or divorce can transfer assets on a ‘no gain/no loss’ basis for up to three years after they stop living together. If the transfer is part of a formal divorce agreement, there is no time limit, ensuring no immediate CGT arises.

Private Residence Relief (PRR) may exempt individuals from paying CGT if the family home meets certain qualifying conditions. It is also important for couples to consider making a legally binding financial agreement. If an agreement cannot be reached, the court can issue a financial order, outlining how assets, financial support, and other arrangements are handled.

Careful planning during separation or divorce can help avoid unexpected tax charges and ensure that financial matters are resolved fairly for both parties.

The new rules will allow companies to raise more capital under the following schemes although investors will need to factor in reduced VCT Income Tax relief when assessing opportunities.

The Venture Capital Trusts (VCT) and Enterprise Investment Scheme (EIS) are designed to encourage private investment into trading companies. Both schemes help support business growth while at the same time encouraging individuals to fund these companies.

A number of changes to the schemes were announced at Budget 2025 and will apply from 6 April 2026.

The main changes are as follows:

• Gross assets limits: Companies’ gross assets will increase for EIS and VCT eligibility to £30 million immediately before the share issue (from £15 million) and £35 million immediately after the issue (from £16 million).
• Annual investment limits: Companies will be able to raise up to £10 million annually (from £5 million) and £20 million for knowledge-intensive companies (from £10 million).
• Lifetime investment limits: Companies’ lifetime limit will increase to £24 million (from £12 million), and £40 million for knowledge-intensive companies (from £20 million).
• VCT Income Tax relief: The rate of Income Tax relief for individuals investing in VCTs will reduce from 30% to 20%.

These increases in annual, lifetime and gross assets apply only to qualifying companies that are not registered in Northern Ireland and are not engaged in trading goods, or in the generation, transmission, distribution, supply, wholesale trade, or cross-border exchange of electricity. These companies remain eligible under the current scheme limits.

These changes are designed to encourage larger investments into qualifying companies. Investors should be aware of the reduced VCT Income Tax relief available and ensure that investments still remain worthwhile.

While there are many state benefits available, it is not always clear which of these are taxable and which are tax-free.

HMRC’s guidance outlines the following list of the most common state benefits which are taxable, subject to the usual limits:

• Bereavement Allowance (previously Widow’s Pension)
• Carer’s Allowance or (in Scotland only) Carer Support Payment
• Contribution-Based Employment and Support Allowance (ESA)
• Incapacity Benefit (from the 29th week you receive it)
• Jobseeker’s Allowance (JSA)
• Pensions Paid by the Industrial Death Benefit Scheme
• The State Pension
• Widowed Parent’s Allowance

The most common state benefits that usually tax-free include the following:

• Attendance Allowance
• Bereavement Support Payment
• Child Benefit (income-based – use the Child Benefit tax calculator to see if you’ll have to pay tax)
• Disability Living Allowance (DLA)
• Free TV Licence for Over-75s
• Guardian’s Allowance
• Housing Benefit
• Income Support – though you may have to pay tax on Income Support if you’re involved in a strike
• Income-Related Employment and Support Allowance (ESA)
• Industrial Injuries Benefit
• Lump-Sum Bereavement Payments
• Maternity Allowance
• Pension Credit
• Personal Independence Payment (PIP)
• Severe Disablement Allowance
• Universal Credit
• War Widow’s Pension
• Winter Fuel Payments and Christmas Bonus

If your business imports goods into the UK, it is important to be familiar with the Customs Declaration Service and to ensure that any duty payments are made correctly and on time to avoid delays, interest or penalties.

The Customs Declaration Service (CDS) is a specially designed IT platform used for completing customs declarations for businesses that import or export goods from the UK. All electronic import declarations must be submitted through the CDS.

When you import goods into the UK using the CDS, you must pay any tax due promptly. Payments should reach HMRC by the deadline, and if that falls on a weekend or bank holiday then the payment must arrive by the previous working day.

Late payments may result in interest charges and / or penalties. You will need your unique 16-character reference number starting with “CDSI,” which is specific to each declaration, to make a payment. Using the wrong number can delay the release of your goods.

Payment can be made online through your bank account or with a debit or corporate credit card (personal credit cards are not accepted). Online bank payments are usually instant but may take up to two hours to appear, while card payments are recorded on the date made.

Payments can also be made by bank transfer. CHAPS or Faster Payments usually arrive the same or next day, while BACS take about three working days. UK payments should go to HMRC’s Customs Duty Schemes account (sort code 08 32 10, account number 14077970). Overseas payments must be made in GBP. There are also options to pay by cheque, allowing three working days for delivery. If there are payment issues or further advice is required, you can contact HMRC’s National Clearance Hub.

There are special rules that apply when a property is let at less than a commercial rate or is not let on commercial terms. These rules also apply if a property is occupied rent free or at less than a commercial rate, for example, a property is occupied by a family member at a reduced or nil rent.

In these circumstances, HMRC can take the view that unless the landlord charges a full market rent for a property and imposes normal market lease conditions, it is unlikely that the expenses of the property are incurred ‘wholly and exclusively’ for business purposes.  Problems may also arise when considering the deduction of expenses during periods when the property is lived in by ‘house sitters’ who do not make any payment whilst staying at the property.

HMRC generally accepts that if a property is let at below the market rate (as opposed to providing it rent-free), the landlord can deduct the expenses of that property up to the rent they receive from letting the property. This means that the affected property produces neither a profit nor a loss. Any excess expenses cannot be carried forward to be used in a later year.

If the landlord is actively seeking a tenant and a relative house sits while it is empty, relief will not be restricted as long as the property remains genuinely available for letting. Relief for capital expenditure on uncommercial lettings may also be restricted.

HMRC has published further guidance on the implementation of the loan charge and has made clear there will be no special settlement terms.

This follows an independent review earlier this year into whether the loan charge was an appropriate way of dealing with loans schemes (also known as disguised remuneration tax avoidance schemes) that have been used by some employers and individuals in order to try and avoid paying Income Tax and National Insurance Contributions (NICs).

The government agreed a series of changes to the loan charge following the review. The amendments went before Parliament in July 2020 and became law following Royal Assent. One of the main changes following the review was confirmation that the loan charge would not apply to users of disguised remuneration avoidance schemes between 6 April 1999 and 5 April 2016 who settled the tax due with HMRC on or after 16 March 2016 and before 11 March 2020.

Most people who have used disguised remuneration schemes will fall into one of 5 main groups, depending on their circumstances.

This will determine what they need to do next, although taxpayers with more complex affairs may fall into several different categories. These groups are:

1. Taxpayers who have settled with HMRC and are not due a refund
2. Taxpayers still settling with HMRC
3. Taxpayers who have not settled and will pay the loan charge
4. Taxpayers who have settled and are due a refund or waiver following the independent review
5. Taxpayers who no longer have to pay some, or all, of the loan charge but have not settled all of their use of DR schemes

Taxpayers that have outstanding disguised remuneration loans that are subject to the loan charge need to file their 2018-19 Self Assessment tax return by 30 September 2020, including a report of any loan balances subject to the loan charge, and put in place any arrangements they need to pay the charge due on that date. Taxpayers can now elect to spread the loan balance over 3 tax years.

A new measure that will provide HMRC with additional civil information powers is expected to take effect when the Finance Bill 2020-21 receives Royal Assent. The new measure known as a Financial Institution Notice (FIN) will be used to require financial institutions to provide information to HMRC, when requested, about a specific taxpayer and without the need for approval from the independent tribunal that considers tax matters.

Currently it takes HMRC on average 12 months to respond to requests for third party financial information from other tax authorities when an information notice is needed, whereas the target under international standards is six months. The introduction of the new FIN will remove the current requirement for HMRC to obtain approval from the tax tribunal before obtaining information from financial institutions and therefore bring the UK into line with international standards on tax transparency and on the quality and speed of exchange of tax information.

The FIN will be balanced by a number of taxpayer safeguards, including:

• the information sought will have to be reasonably required for the purpose of checking a known taxpayer’s tax position. For international requests, the information in the FIN will need to be relevant to the administration or collection of tax and the jurisdiction requesting the information would need to have exhausted all reasonable domestic ways to get the information;
• documents subject to legal professional privilege cannot be requested;
• HMRC will be required to tell the taxpayer why the information is needed, unless a tax tribunal rules this condition should not apply;
• an authorised officer of HMRC (someone with the relevant experience and training) will need to approve the decision to issue a FIN;
• if a Financial Institution does not comply with a FIN, and as a result HMRC charges penalties, the Financial Institution will be able to appeal against the penalties

In addition, HMRC is required to report to Parliament annually on the use of the FIN.

HMRC has published a series of a consultations together with details of proposed legislative changes to existing anti-avoidance regimes to strengthen HMRC’s ability to further clamp down on the market for tax avoidance.

The proposals include:

• ensuring HMRC can effectively issue stop notices to promoters, under the Promoters of Tax Avoidance Scheme (POTAS) rules, to make it harder to promote schemes that do not work
• preventing promoters from abusing corporate entity structures to avoid their obligations under the POTAS rules
• ensuring HMRC can obtain information about the enabling of abusive schemes (for the purposes of the Enablers Penalty Regime) as soon as they are identified and ensuring enabler penalties are felt without delay when a scheme has been defeated at tribunal
• ensuring that HMRC can act quickly and decisively where promoters fail to provide information on their avoidance schemes under the Disclosure of Tax Avoidance Schemes (DOTAS).
• making further technical amendments to the POTAS regime so that it continues to operate effectively and to ensure that the General Anti Abuse Rule (GAAR) can be used to counteract partnerships as intended.

The consultation is open for comment until 15 September 2020. The new measures are expected to be included in the Finance Bill 2020-21.

HM Treasury has confirmed the extension of Making Tax Digital (MTD) to cover businesses with a turnover below the VAT threshold and for certain individuals who file Income Tax Self-Assessment tax returns. This announcement provides much-needed clarity of the way forward for this scheme.

MTD started in April 2019 (for VAT purposes only) when businesses with a turnover above the VAT threshold of £85,000 became mandated to keep their records digitally and provide their VAT return information to HMRC using MTD compatible software. Since the launch more than 1.4 million businesses have joined the programme.

The first part of the further roll-out of MTD will start April 2022, when MTD will be extended to all VAT registered businesses with turnover below the VAT threshold of £85,000. This will be followed one year later (April 2023) when MTD will be extended to taxpayers who file Income Tax Self-Assessment tax returns for business or property income over £10,000 annually.

HMRC has said that the long lead-in time will allow businesses, landlords and agents time to plan. It also gives software providers enough notice to bring a range of new products to market, including free software for businesses with the simplest tax affairs.

Financial secretary to the Treasury Jesse Norman said:

'We are setting out our next steps on Making Tax Digital today, as we bring the UK’s tax system into the 21st century. Making Tax Digital will make it easier for businesses to keep on top of their tax affairs. But it also has huge potential to improve the productivity of our economy, and its resilience in times of crisis.'

The government has also confirmed that it remains committed to extending MTD to other taxes. The government will also consult later this year on the detail of extending MTD to incorporated businesses with Corporate Tax obligations.