LogoLogo
Recap HomeCrypto Tax Guide (Lite)HMRC Cryptoassets Manual
  • A Technical Guide to Cryptocurrency Tax for UK Individuals
    • What are Cryptoassets?
    • Who are Recap?
  • CRYPTOCURRENCY TAX
    • Do I Need to Pay Tax on my Cryptoassets?
    • Which Taxes Apply?
      • Capital Gains Tax (CGT)
      • Income tax
      • VAT
      • Inheritance tax
      • Stamp Duty
    • How Much Tax Will I Pay?
    • New HMRC DeFi Guidance
      • Overview of HMRC guidance
      • 1️⃣Is the Reward Income or Capital?
      • 2️⃣Is Beneficial Ownership (BO) transferred?
      • 3️⃣Consider the Tax Treatment
        • Staker/Lender/Collateral Provider
          • Income Rewards
            • BO transferred
              • ➡️At Point of Entry
              • ⬅️At Point of Exit
              • 💧On Liquidation
              • 💎On Receipt of Income Reward
              • Example 1A
              • Example 2A
            • BO not transferred
              • ➡️At Point of Entry
              • ⬅️At Point of Exit
              • 💧On Liquidation
              • 💎On Receipt of Income Reward
              • Example 1B
              • Example 2B
          • Capital Rewards
            • BO transferred
              • ➡️At Point of Entry
              • ⬅️At Point of Exit
              • 💧On Liquidation
              • 💎On Receipt of Capital Reward
              • Example 1C
              • Example 2C
            • BO not transferred
              • ➡️At Point of Entry
              • ⬅️At Point of Exit
              • 💧On Liquidation
              • 💎On Receipt of Capital Reward
              • Example 1D
              • Example 2D
        • Borrower
    • Investor or Trader?
      • Badges of Trade Limitations
      • HMRC Approach
      • Court Cases involving Financial Traders
    • Capital Gains Tax
      • Calculating the Capital Gains Position
      • Disposal proceeds
      • Disposals to Connected Parties
      • Allowable costs for CGT
        • Exchange fees
        • Forks - affect on allowable costs
      • Capital Loss Claims
    • Income Tax
      • Financial trading income
      • Miscellaneous Income
      • Employment income
    • Fair Market Valuation
  • TRANSACTION TYPES
    • 💷Selling Crypto for Fiat
    • 🔄Trading Crypto to Crypto
    • 🛍️Purchases using Crypto
    • 🎁Gifts
    • 💍Spouse Transfers
    • 🎗️Gifts to Charity, CASCs & Bodies for a National Purpose
    • 🎈Airdrops
    • 🤝Staking
    • 💸Transfers
    • 🍴Forks
    • ⛏️Mining
    • 👛Employment income
      • UK Employer
      • Overseas employer
      • National Minimum Wage (NMW)
    • 🚨Lost & Stolen Crypto
    • 🎲Gambling
    • 💧Liquidity Pools
      • Example - Liquidity pool
    • ⬆️Token Upgrades/Swaps
    • 🔮Cryptoasset derivatives (CFDs, Futures and Margin Trading)
    • 💼Crypto Loans
    • 🔄REPOS
    • 🪞Reflections Rewards
    • 👥Referral Income
    • 💳Cashback
    • 🎨NFTs (Non Fungible Tokens)
    • 🎮NFTs earned playing games
  • Record Keeping
  • Filing Your Self-Assessment
    • How to Register for Self-Assessment
    • How to Fill In the Tax Return
    • Submitting the Tax Return and Paying the Tax
Powered by GitBook
On this page

Was this helpful?

  1. CRYPTOCURRENCY TAX
  2. Investor or Trader?

Badges of Trade Limitations

PreviousInvestor or Trader?NextHMRC Approach

Last updated 3 years ago

Was this helpful?

One approach to determine if there is financial trading is to consider the ‘’.

However, the confirms it is important to be aware of the limitations of this approach in considering an activity of buying and selling shares and other financial instruments (and therefore cryptoassets).

  • The ‘Badges of Trade’ emerged from a Royal Commission of 1955. Two members of the commission identified share transactions as being ones where a strict application of these Badges could produce the wrong answer.

  • The presence of a large number of purchases and sales may often be used to support an argument that an activity amounts to trading, but this has no particular relevance to share transactions. In Clarke v Trustees of British Telecom Pension Scheme & Others [2000] 72TC472, Robert Walker LJ said: ‘Frequency cannot by itself be decisive, since an investor may change his investments frequently without the investments losing their character.’

  • Nor is the presence or lack of a trading organisation significant. As Lord Wilberforce remarked in Ransom v Higgs [1974] 50 TC 1, ‘All depends on what you organise.’ No special organisation is needed to buy and sell shares, nor do they need any alteration before being sold. In any event, large investment entities such as pension funds exhibit an obvious level of organisation, but this does not transform them into trading entities.

  • The limitation of the Badges of Trade as a whole was considered by Oliver J in Salt v Chamberlain [1979] 53TC143 at page 154: ‘…I doubt whether the question whether in any given case a person is or is not carrying on a trade is capable of solution by the application of a logical progression of propositions culled from decided cases. The question is, I think, one of overall impression.’ In the Salt case it was held that there was not a trade, despite a number of the badges being present.

Rather than considering the Badges of Trade, the better approach is to look at the facts and circumstances of the transaction as a whole; and then form a view as to whether the activity amounts to a trade or not. There is further guidance on this at to .

BIM56850
BIM56870
Badges of Trade
HMRC Business Income Manual
LogoBIM56850 - Business Income Manual - HMRC internal manual - GOV.UK