BIM22035 - Meaning of trade: exceptions and alternatives: miscellaneous income

If you are in doubt as to whether particular activities amount to or form part of trading income, you should consider alternative ways in which they may give rise to taxable income.

Profits arising from operations which cannot definitely be regarded as amounting to a trade within S989 Income Tax Act 2007 (ITA 2007) or S1119 Corporation Tax Act 2010 may nevertheless be miscellaneous income. This is confirmed by dicta in Governors of the Rotunda Hospital, Dublin v Coman [1920] 7TC517.

That case concerned a body of hospital governors who were the statutory occupiers of a concert hall and ballroom which were let for varying periods on terms which included the provision of seating and heating, with additional charges for electricity. The governors argued that the liability was exhausted by the Schedule A assessment (the charge to tax in respect of property income). Schedule A in those days was based on annual values and the assessment was less than the actual income; hence the Revenue’s wish to find an alternative taxing the profit. The Courts held that the activities constituted a source of income which was either an adventure or concern in the nature of trade, or, if not, was liable under Schedule D Case VI or what we now describe as miscellaneous income. What was let was the room and services as a composite whole; the lettings were merely licences and did not create a landlord and tenant relationship. This is an example of the provision of services and facilities that could lead to annual profits or gains chargeable as miscellaneous income, if the activities fell short of constituting a trade for tax purposes.

The limitations

However, this approach has important limitations. Generally, there can be no liability as miscellaneous income on normal principles where operations involve the single purchase and sale of a commodity/asset or, as in Pickford v Quirke [1927] 13TC251 there are several sets of such transactions. In such cases if there is no trade within S989 ITA 2007 or S1119 Corporation Tax Act 2010, there is only a capital gain.

For example, in Leeming v Jones [1930] 15TC333 the taxpayer was a member of a syndicate formed to purchase two rubber estates with a view to their resale at a profit. Profits were in fact made. The Commissioners (the predecessors of the Tribunal) found that the transaction was not a concern in the nature of trade and the Revenue contended, unsuccessfully, that the profit was nevertheless assessable under Schedule D Case VI or miscellaneous income as we now describe it. The House of Lords quoted with approval the comment of Lawrence LJ in the Court of Appeal where he said:

‘It seems to me that in the case of an isolated transaction of purchase and resale of property there is really no middle course open. It is either an adventure in the nature of trade, or else it is simply a case of sale and resale of property.’

Later legislation, usually designed to counter tax avoidance, has however imposed liability in specific situations where it would be ruled out by the principle in Leeming v Jones. There is guidance on specific situations as follows:

• transactions involving land at BIM60300.
• profits from casual services rendered or facilities afforded at BIM100110 onwards.