It’s a ‘business’: HMRC says so!

By | 29 June 2021

It might be considered straightforward enough to identify a ‘business’. However, that is not necessarily the case.

HMRC will not give advance clearance on whether activities constitute a business. However, this question can be important for various tax purposes.

An important issue

For example, whether a business exists is a potential issue for many buy-to-let landlords who have been seeking to incorporate their property activities. However, transferring properties to a company (‘incorporation’) has implications for capital gains tax (CGT) purposes (and possibly also other taxes, including stamp duty land tax or its equivalent in Scotland and Wales).

The property transfers are deemed to take place at market value for CGT purposes, possibly resulting in chargeable gains on increases in value since the properties were acquired. However, a specific CGT relief is available upon incorporation (TCGA 1992, s 162). If the relevant conditions are satisfied and this relief applies without restriction, net chargeable gains on the properties are effectively ‘rolled over’ and deducted from the base cost of the company’s shares.

One of the conditions for ‘incorporation relief’ is that there is a transfer to the company of a business as a going concern. For incorporation relief purposes, it is therefore necessary to consider whether the rental property activities are sufficient to constitute a business. However, as mentioned HMRC refuses to offer its view on whether activities (e.g. property rental) constitute a ‘business’.

Active involvement is a requirement…

The decision in Ramsay v Revenue and Customs [2013] UKUT 226 (TCC) is helpful on the meaning of ‘business’, at least in the context of rental property activities and incorporation relief (see

Following Ramsay, HMRC amended its guidance, which states (at CG65715): “Mrs Ramsay was found to have worked on the property for about 20 hours per week which was found to be sufficient to indicate the carrying on a business. You should accept that incorporation relief will be available where an individual spends 20 hours or more a week personally undertaking the sort of activities that are indicative of a business. Other cases should be considered carefully.”

…or is it?

The ‘20 hours’ requirement in HMRC guidance for property landlords appears to mean that many landlords who use property lettings agents would fail this business test, if the agent does most of the work. Or does it?

In its National Insurance manual (at NIM23800), HMRC states: ‘…a person who is liable to Income Tax on the profits arising from the receipt of property rental income will only be a self-employed earner for NICs purposes if the level of activities carried out amounts to running a business.’

However, in the context of agents, HMRC adds: “If a property owner has an agent who manages their property for them, things that the agent does should be attributed to the owner. ‘Agent’ includes a friend or family member, as well as a professional managing agent. However, a property owner will only be a self-employed earner on this basis if the things that the agent does for them (ignoring any other clients they might have) are enough to count as a business or trade.” The landlord may therefore have a ‘business’ if the tasks the agent performs for them are sufficient.

Practical point

HMRC guidance is not law. However, it seems that a landlord can arguably have a ‘business’ even without passing the ‘20 hour’ rule, with the help of an agent.

The above article was first published in Business Tax Insider (April 2020) (