1. Trading Income - who is taxed?

Question 1

IRC v Maxse (1919)

Answer 1

Profession has been judicially described as involving :
- an occupation requiring either purely intellectual skill or

• manual skill controlled by the intellectual skill of the operator’

Question 2

“PROFESSION” examples

Answer 2

Journalist (Maxse)
Surgeon – manual skill controlled by intellectual skill
Author
Solicitor/barrister – interesting because when you say solicitor you don’t think of profession taxed in this way, because many solicitors are employed

Question 3

s.2(1)b ITTOIA 2005

Answer 3

If you’re someone who can fall under s.5 ITTOIA and ITEPA 2003, then ITEPA has priority over ITTOIA

• avoid double taxation

Question 4

Davies v Braithwaite (1931)

Answer 4

NOT determinative of “profession” rather than employment:

• how many people you work for
• time you work for on each project

Question 5

Durant v IRC [1921]

Answer 5

Insurance Broker held not to be carrying on a profession

Question 6

Patridge v Mallandaine

Answer 6

‘Vocation’ has a wide meaning usually relating to the way a person passes their life and indicates a calling

• bookmaker is vocation
• it is an organised activity to profit from gaming public
• if just gambling that isn’t how you earn your living (just a coincidence - Graham v Green)

Question 7

Graham v Green (1925)

Answer 7

• gambling is not a vocation

Rowlatt J – “a bet is merely an irrational agreement that one person should pay another on the happening of an event”

= even though he might make a net profit at the end of the year it doesn’t matter because most gamblers make a net loss so no point taxing it

Question 8

Hakki v Secretary of State for Work and pensions

Answer 8

income of a poker player was not taxable under income tax (NOT a profession)

Question 9

WHY do we distinguish profession from trade?

Answer 9

1. Certain capital allowances (e.g. research and development) are only available to traders
2. An isolated transaction might be in the nature of trade but an isolated service cannot fall within Part 2
3. Sharkey v Wernher rule does not apply to professions
4. Exemption from CGT for certain damages is confined to professions and vocations
5. Deduction rules are argued to be less fair for professions than for traders
6. Company might not be able to carry a profession (there is dicta to that effect, but many professions are now carried under protection of an entity like an LLP)
7. At one time there were special rules allowing cash basis accounting for certain professions

Question 10

TRADE - s.989

Answer 10

A trade “includes every trade, manufacture, adventure or concern in the nature of a trade”

Question 11

CIR v Livingston [1926]

Answer 11

actions “characteristic of ordinary trading in the line of business in which the venture was made’

Question 12

Erichsen v Last (1881)

Answer 12

“wholly unwise to attempt to give an exhaustive definition of when a trade”

• trade is a cluster concept
• you consider various factors

Question 13

Ransom v Higgs (1974)

Answer 13

THE CASE YOU CITE IF OBVIOUS IT IS A TRADER (plus s.5 and that is enough)

• Lord Wilberforce: “trade normally involves the exchange of goods or services for reward… “
• Lord Reid: “trader provides to customers for reward some kind of goods or services”

Question 14

HMRC Business Income Manual 14090

Answer 14

The difference between a trade, profession and vocation “in practice causes few problems and it is rarely necessary to debate the point when a taxpayer is clearly carrying on one or the other.”