Advanced Taxation

Running head: ADVANCED TAXATION
Advanced Taxation
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1ADVANCED TAXATION
Table of Contents
Answer to Question 1:................................................................................................................2
Answer to Question 2:................................................................................................................4
References:.................................................................................................................................6

2ADVANCED TAXATION
Answer to Question 1:
According to “Section 5 of ITTOIA 2005”, income tax is charged mainly on profits
of a profession, vocation or trade (Legislation.gov.uk 2019). Since “The Income Tax Act
2007” does not provide complete definition of a trade, the actual meaning of this term has
been left on the hands of the courts so that they could differentiate between trading and
capital transactions. Due to this, the courts have designed various trades for ascertaining
whether an individual is trading or not (Best and Kleven 2017). The primary factors taken
into consideration for determination of the same include the following:
Profit seeking motive:
When an individual involves in any transaction, it is necessary to ascertain whether
the motive is to seek profit. Thus, the existence of profit is not deemed to be significant;
instead, a motive is crucial for making profit (De Cogan 2015). However, the customs and
HM Revenue would have an interest in this issue whether any profit is actually made so that
they could impose tax charges. Any taxpayer might argue that the main reason of trading is to
utilise a loss for minimising tax bill. In such situation, the taxpayer has to explain the motive,
instead of the profit existence to establish the conduction of trade.
Frequency and number of identical transactions:
If an individual conducts any activity once without the intention of repeating the same
again in future, it is not likely that the individual would be treated as continuing on with a
trade. However, if the act is kept on repeating, it is probable that trading is continued. For
instance, if an individual purchases a car and sells it after four years after which another car
was purchased and sold in next two years, it does not imply car trade (Egger et al. 2015). On
the other hand, if cars are purchased and sold each month, it implies the presence of a trade.