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ACCA Applied Skills · Taxation (UK) · Income from self-employment

Which one of the following factors, when present, most strongly indicates that a disposal of goods by an individual amounts to a trade for income tax purposes?

Buying goods in bulk that the owner cannot use personally and reselling them quickly for a profit indicates trading. Short ownership, a profit motive and a quantity beyond private use are badges of trade, whereas gifts, long personal use and one-off investments suggest the disposal is not trading.

  1. AThe goods were received as a gift and sold years later because the owner needed cash
  2. BThe goods were bought in bulk, were of no personal use to the owner, and were sold soon afterwards at a profitCorrect
  3. CThe goods were used by the owner for several years before being sold
  4. DThe item sold was a single painting bought as a long-term investment

Explanation

Under the badges of trade, buying goods in a quantity far beyond personal use, with a short period of ownership and a profit motive, points to trading. Gifts, long personal use and a one-off asset sale point to a non-trading disposal, so the other options indicate no trade.

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