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This guidance note considers the application of the badges of trade in specific situations. For more on the badges of trade, see the Meaning of trading guidance note.

The application of the badges of trade is also considered in ‘You’re trading!’ by Mark McLaughlin in Taxation, 30 June 2011, 8 and ‘Got the badge’ by Sarah Saunders in Taxation, 16 June 2016, 14.

Remember, the badges of trade do not apply for VAT purposes. Instead, it must be determined whether there is a business. This is known as the ‘business test’ and the principles come from case law. Guidance can be found in HMRC Brief 10/22. It is possible for an individual to be trading for income tax purposes but not be able to register for VAT as they are not running a ‘business’ for VAT purposes.

After deciding whether the taxpayer is running a business for VAT purposes, consideration should be given to the type of supply and whether the business needs to register for VAT. An overview of these areas