{"id":21874,"date":"2022-03-17T11:49:55","date_gmt":"2022-03-17T11:49:55","guid":{"rendered":"https:\/\/smh.group\/?p=21874"},"modified":"2023-02-15T13:46:31","modified_gmt":"2023-02-15T13:46:31","slug":"what-is-substantial-extent-for-non-trading-activities","status":"publish","type":"post","link":"https:\/\/devstagesite.co.uk\/smhgroup\/what-is-substantial-extent-for-non-trading-activities\/","title":{"rendered":"What is \u2018substantial extent\u2019 for non-trading activities?"},"content":{"rendered":"<p><strong>Gains that qualify for business asset disposal relief (BADR) are taxed at a reduced rate of 10%, but relief for company shares is not available if the underlying company carries on substantial non-trading activities. HMRC has long applied a strict 20% test, but a recent Upper Tribunal case has forced HMRC to backpedal and further clarify the interpretation of &#8216;substantial&#8217;.<\/strong><\/p>\n<p>In <em>Assem Allam vs. HMRC [2021] UKUT 0291<\/em>, the Upper Tribunal found that previous HMRC guidance using a simple 80\/20 test of trading versus non-trading activity is not always going to produce the correct answer when deciding if the relief is available. HMRC guidance has not completely done away with the 20% test, but less emphasis is now placed on it.<\/p>\n<p>In any dispute with HMRC, it is important to remember that a decision of the Upper Tribunal makes the law, but HMRC guidance does not have the force of law.<\/p>\n<h2><strong>Upper Tribunal approach <\/strong><\/h2>\n<p>The Upper Tribunal concluded that the legislation does not provide for a strict numeric test. The test of whether non-trading activities are substantial is a holistic one not confined to physical human activity, but requires an overall consideration of what it is that the company does.<\/p>\n<p>Other factors than those listed in HMRC\u2019s guidance can also be relevant.<\/p>\n<h2><strong>HMRC guidance<\/strong><\/h2>\n<p>HMRC\u2019s revised guidance now states that the 20% test is only likely to be relevant when considering the level of non-trading income and the value of a company\u2019s non-trading assets. If neither exceed 20%, HMRC will generally accept that the relief is available without further enquiry.<\/p>\n<ul>\n<li>Also relevant is the proportion of expenses spent on non-trading activities, as well as the amount of time and resources incurred.<\/li>\n<li>The relevant factors should be considered over a company\u2019s history, not just at one point in time; particularly if trade is seasonal.<\/li>\n<\/ul>\n<p>Having investment property may therefore preclude claiming BADR. However, there is a bit more leeway when it comes to a large cash balance because it may be argued out of the equation as being required for trading purposes.<\/p>\n<p>HMRC\u2019s guidance on the meaning of \u2018substantial\u2019 can be found <a href=\"https:\/\/www.gov.uk\/hmrc-internal-manuals\/capital-gains-manual\/cg64090\" target=\"_blank\" rel=\"noopener\"><span style=\"text-decoration: underline;\"><strong>here<\/strong><\/span><\/a> within their capital gains manual.<\/p>\n<p>If you need guidance for your non-trading activities, our <a href=\"https:\/\/devstagesite.co.uk\/smhgroup\/chartered-accountants\/\"><span style=\"text-decoration: underline;\"><strong>Sheffield Accounting &#038; Business Advisory<\/strong><\/span><\/a> can help on <strong>0114 266 4432<\/strong> or <span style=\"text-decoration: underline;\"><strong>info@smhca.co.uk<\/strong><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Gains that qualify for business asset disposal relief (BADR) are taxed at a reduced rate of 10%, but relief for company shares is not available if the underlying company carries on substantial non-trading activities. HMRC has long applied a strict 20% test, but a recent Upper Tribunal case has forced HMRC to backpedal and further clarify the interpretation of &#8216;substantial&#8217;.<\/p>\n","protected":false},"author":4,"featured_media":21875,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"footnotes":""},"categories":[3],"tags":[897,898,35,69,11,896,25,19],"class_list":["post-21874","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-smh-accounting-business-advisory","tag-asset-disposal","tag-badr","tag-business","tag-capital-gains-tax","tag-hmrc","tag-non-trading","tag-property","tag-tax"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>What is \u2018substantial extent\u2019 for non-trading activities? - SMH Group<\/title>\n<meta name=\"description\" content=\"Gains that qualify for business asset disposal relief (BADR) are taxed at a reduced rate of 10%, but relief for company shares is not available if the underlying company carries on substantial non-trading activities. 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