VCM3030 - Excluded activities: dealing in goods otherwise than in the course of an ordinary trade of wholesale or retail distribution

ITA07/S192(1)(b); ITA07/S303(1)(b)

The legislation excludes dealing in goods otherwise than in the course of an ordinary trade of wholesale or retail distribution.

The word ‘goods’ is not defined in the legislation. It may be regarded as having a very wide meaning in this context, covering virtually any tangible asset other than those mentioned in other parts of the list of excluded activities.

It may be useful to note that the meaning of the word ‘goods’ has been considered for other tax purposes, notably in relation to Industrial Buildings Allowances, and there has been some case law consideration of the meaning in that context - see CA32212. In the IBA context, the Courts have quoted with approval the statutory definition in the Sale of Goods Act, which says that ‘goods’ includes, “all personal chattels (i.e. tangible, moveable assets) other than things in action and money; and in particular ‘goods’ includes emblements (crops the rights to which are held by a tenant), industrial growing crops, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale; and includes an undivided share in goods.”

CA32212 lists a number of items which have specifically been found not to be ‘goods’ for the purposes of the CA legislation, including land, currency, cheques, documents (in the particular context of their use by a bank), and human remains.

See VCM3020 for the difference between goods and commodities. For the exceptions made for wholesaling and retailing, see below.

ITA07/S193; ITA07/S304

The legislation excludes dealing in goods except where this occurs in the course of an ordinary trade of wholesale or retail distribution. Not all dealing amounts to distribution, which has connotations of selling goods obtained from one or more sources to a much larger number of customers.

‘Wholesale’ and ‘retail’ distribution are defined as follows.

  • A trade of wholesale distribution is one in which the goods are offered for sale and sold to persons for resale by them or for processing and resale by them, to members of the general public for their use or consumption.
  • A trade of retail distribution is one in which the goods are offered or exposed for sale and sold to members of the general public for their use or consumption.

A trade should not be regarded as disqualified on the grounds that the type of goods is such that only a small and specialised group of the general public is likely to be interested in using or consuming them.

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‘Ordinary’ trade of wholesale or retail distribution

The legislation specifically excludes from the definition of ‘ordinary trade or wholesale or retail distribution’, any which consists to a substantial extent of dealing in goods of a kind which are either collected or held as an investment, and where a substantial proportion of the goods are held for a period which is significantly longer than the period for which a vendor would reasonably be expected to hold them while endeavouring to dispose of them at their market value.

This is intended to exclude assets which may be being held with a view to capital appreciation rather than as genuine trading stock - for instance, fine wines, antiques or vintage cars. Thus if a substantial proportion of the ‘investment’ goods are not being actively marketed at a realistic price, the trade is disqualified even if a ‘normal’ trader in that field would be holding such stock for maturity and actively marketing it.

There is a list of features to which regard must be had when deciding whether or not trades can be classed as ordinary. In the vast majority of cases, one can recognise instantly an ordinary wholesale or retail trade of distribution without referring to the list. No method of evaluating the listed features is prescribed. The list is as follows:

  1. the goods are bought by the trader in quantities larger than those in which the trader sells them,
  2. the goods are bought and sold by the trader in different markets,
  3. the trader employs staff and incurs expenses in the trade in addition to the cost of the goods and, in the case of a trade carried on by a company, in addition to any remuneration paid to any person connected with it,
  4. there are purchases from or sales to persons who are connected with the trader,
  5. purchases are matched with forward sales or vice versa,
  6. the goods are held by the trader for longer than is normal for goods of the kind in question,
  7. the trade is carried on otherwise than at a place or places commonly used for wholesale or retail trade,
  8. the trader does not take physical possession of the goods.

The features in paragraphs (a) to (c) are regarded as indications that the trade is an ordinary trade of wholesale or retail distribution, whilst those in paragraphs (d) to (h) are regarded as indications to the contrary. Not all the listed features will always be relevant, and the presence or absence of a particular feature will not be conclusive.

HMRC staff should submit any doubtful case to CT Innovation and Growth Team (CT I&G) before listing any appeal for hearing.