When does trading commence?

[BobBuilder]

A company sets up to perform plays in pubs. It forms the company Jan 18th, it starts employing writers and designing props on March 20th, it starts selling the idea to publicans April 8th, it does its first performance July 4th. It invoices July 5th.

Any thoughts on when trading has commenced please?

 

[james_firmsites]

20th March (assuming it was not paying anyone between 18th Jan and that date)

 

[David Griffiths]

April 8th - the date that it began to seek custom

Draw a parallel with a shop. You spend time researching the idea, acquiring and preparing premises, acquiring stock. Then you open the doors for business - that's the date that the trade starts. It doesn't matter (for this purpose) if you don't actually sell anything on that day

In this case the activity on 20 March is akin to the pre-opening phase. You "opened the doors" on April 8th

 

[james_firmsites]

http://www.hmrc.gov.uk/ct/getting-started/trading.htm#1

The employment of writers and designing props is an act of trade (you are buying services in order to sell product).

If in doubt call HMRC, they will tell you they consider the company actively trading from that point.

The parallel with the shop is incorrect, even in your example the trading date would be prior than opening doors since again you are acquiring goods for the purpose of resell...aka trading!

 

[BobBuilder]

Thank you both for your comments.

With respect to James' comments, none of the examples at http://www.hmrc.gov.uk/ct/getting-started/trading.htm#1 :

• carrying on a business activity such as a trade or professional activity
• buying and selling goods with a view to making a profit or surplus
• providing services
• earning interest
• managing investments
• receiving any other income

suggest to me that just buying services or goods trigger a commencement of trading.

Looking more at http://www.hmrc.gov.uk/ct/getting-started/trading.htm#1 it says that "preliminary activities such as writing a business plan or negotiating contracts" are not considered trading. Considering that some services must have been offered before a contract is negotiated (it would other wise be a somewhat abstract negotiation!), it doesn't seem that the offering of services would trigger a commencement of trading either.

Further comments welcome!

 

[james_firmsites]

Have you called HMRC as I suggested? They would clear this up for you instantly.

The examples they give are for planning & contract writing, I don't see how the actual hiring/contracting of staff for work ie writers and designers could be classed as planning. I am unsure as to why you are trying to push the date forward?

 

[BobBuilder]

Have you called HMRC as I suggested? They would clear this up for you instantly.

I've not called HMRC as I'm not inclined to just accept what a call operator at HMRC tells me as I don't expect them to be experts. Or maybe I'm doing them a dis-service?

 

[Simon.P]

I've not called HMRC as I'm not inclined to just accept what a call operator at HMRC tells me as I don't expect them to be experts. Or maybe I'm doing them a dis-service?

um, to be fair, i have not known HMRC to give out incorrect advice. I know getting hold of them aint always easy, but if they don't know the answer, they usually put you on hold and find out

 

[teddys]

A company sets up to perform plays in pubs. It forms the company Jan 18th, it starts employing writers and designing props on March 20th, it starts selling the idea to publicans April 8th, it does its first performance July 4th. It invoices July 5th. Any thoughts on when trading has commenced please?

This is what the law says. You seem to have started carrying on a business activity on April 8. The activities before that were pre-trading ones.

 

[David Griffiths]

http://www.hmrc.gov.uk/ct/getting-started/trading.htm#1

The employment of writers and designing props is an act of trade (you are buying services in order to sell product).

If in doubt call HMRC, they will tell you they consider the company actively trading from that point.

The parallel with the shop is incorrect, even in your example the trading date would be prior than opening doors since again you are acquiring goods for the purpose of resell...aka trading!

The parallel with the shop is correct. Your link to the HMRC site includes the statement

"However, you may still carry out activities (known as 'pre-trading activities') or incur costs (known as 'pre-trading expenditure') before you officially open your business without HMRC deeming that you have started trading."

If the "doors" are never opened there never has been a trade. Anything done before that is a pre-trading activity.

 

[james_firmsites]

The parallel with the shop is correct. Your link to the HMRC site includes the statement

"However, you may still carry out activities (known as 'pre-trading activities') or incur costs (known as 'pre-trading expenditure') before you officially open your business without HMRC deeming that you have started trading."

If the "doors" are never opened there never has been a trade. Anything done before that is a pre-trading activity.

"...acquiring stock."

"buying and selling goods with a view to making a profit or surplus"

Read the first section, it makes it clear that in your shop analogy the purchase of stock constitutes trading.

The debate here, is if the purchase or hiring of services is a trade. Personally I think HMRC would take the view it is.

Lets propose a more accurate hypothetical to the OP's question. Lets say your a software company so instead of writers and prop designers you hire programmers. You spend 3 years writing a program before you sell it. They would not say just because you have not sold it yet that is not an active business, because you are developing IP for sale. In the same way the OP talks of "employing writers and designing props on March 20th", well by the same token employing people is conducing a business activity "carrying on a business activity such as a trade or professional activity".

 

[BobBuilder]

"buying and selling goods with a view to making a profit or surplus"

Thanks again for your comments - I think your quote would have proved the point if it didn't have the words "and selling" in the middle of it.

 

[David Griffiths]

"...acquiring stock."

"buying and selling goods with a view to making a profit or surplus"

Read the first section, it makes it clear that in your shop analogy the purchase of stock constitutes trading.

The debate here, is if the purchase or hiring of services is a trade. Personally I think HMRC would take the view it is.

Lets propose a more accurate hypothetical to the OP's question. Lets say your a software company so instead of writers and prop designers you hire programmers. You spend 3 years writing a program before you sell it. They would not say just because you have not sold it yet that is not an active business, because you are developing IP for sale. In the same way the OP talks of "employing writers and designing props on March 20th", well by the same token employing people is conducing a business activity "carrying on a business activity such as a trade or professional activity".

I suspect that we are going to have to agree to differ on this as we are clearly reading the same words in a completely different way. For example pre doors-opening the business is buying goods. It is not "buying and selling goods" Everything in that list points to active trading - carrying on a business, buying and selling, providing services. Until that point, the business is preparing to trade.

Your hypothetical example is interesting. How about a case where a company has the concept of a new product. It spends a year or more developing the prototype, paying people to do that, apply for a patent, etc, That is not trading - I have a client in exactly that position and HMRC agree

As I said I suspect that we are not going to agree on this. It's a process that I have used for many years and never once even had a query about date of commencement with HMRC, so I'm not going to change my mind on it. Nor am I going to spend any more time on this discussion.

 

[BobBuilder]

Thanks for your input David. I agree with your interpretation of the words although taking it further I haven't seen anything that supports the idea that when one starts promoting the product or service (opening the doors to the shop) that trading has then commenced.

The question incidentally was related to SEIS and a requirement not to have been trading for more than 2 years at date of issue.