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Unit 9: Income under the Head Business and Profession

3. It is, however, not possible to evolve a common test or formula which could be applied Notes
uniformly in all cases to determine whether a particular transaction is an adventure in the
nature of trade or not. The nature of the transaction will have to be determined in each case
depending upon the facts or circumstances. The concept of income based upon the principles
discussed under Section 4 laying down the principles to be applied for distinguishing
between receipts of a capital and revenue nature must be followed even in cases where
income is to be computed under this head. In other words, the taxability of income under
this head depends primarily upon the fact that the receipt in question is of a revenue
nature and is consequently assessable as income under the Act.

Caselet Athletes Taxation

ary participates at elite level in a sport which requires heavy expenditure on
equipment. She moved from her parent’s home, where she normally lived, to
Ma flat which she rents near the sport’s national training facilities because it is
too far to travel from her parent’s home each day. She is in receipt of an Athlete Personal
Award of £15,000 and sponsorship income of £5,000. This total funding of £20,000 is however
insufficient to meet her training and subsistence expenses which include the costs of the
flat. Even though Mary is still only exercising a hobby and not yet trading it is worth
noting that if the sponsorship income is received in return for services rendered, and this
could simply be an endorsement of certain products, then the £5,000 would be taxable as
miscellaneous income.
Mary wins gold at the World Championships and engages an agent to help her exploit her
recent success. She is able to secure more sponsorship income and promotional work for
a national company.

Mary’s sports activities are no longer a hobby for tax purposes. She is now organised in a
business-like manner and conducts her sports activities with a view to profit. She is now
taxable as she is carrying on a profession.
Mary can deduct from her taxable income (which includes APA; winnings, appearance
money etc. from competitions and events; from associated activities undertaken by her
e.g. TV appearances and the value of goods or equipment supplied to her), expenses
incurred wholly and exclusively for the purpose of her profession e.g. training costs,
travel expenses to events etc. or indeed any expenditure incurred solely for business
purposes. She will also be able to claim capital allowances on equipment she has purchased
for the purpose of her profession. Business purpose must be the sole purpose; any
non-business benefit to Mary must be incidental. Whether such expenses are allowable in
computing profits will depend on the facts of each case. All expenses claims should be
supported by records and documentation.

If an expense is dual purpose, part of the expense may be allowed in computing profits.
Subsistence costs such as the flat rental, flat overheads and other living costs are unlikely
to be wholly and exclusively for the purposes of Mary’s profession. Part of the cost may be
deductible if an identifiable part or proportion of the expense is incurred wholly and
exclusively for the purpose of Mary’s profession. For example if Mary uses a room in her
flat exclusively as a gym and to store her sports equipment she may claim a proportion of
the rent and other accommodation costs as a business expense.
Source: http://www.hmrc.gov.uk/manuals/bimmanual/bim50606.htm

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