Updated: Aug 31
Can a self-employed plumber, intending to establish an online trade to source and sell plumbing parts alongside their existing business and set off losses against both businesses?
The key question is whether this constitutes the commencement of a new trade. Generally, a sole trader is allowed to conduct multiple trades, except for farming activities that are deemed a single trade. Whether multiple activities can be considered as one trade depends on the facts of the case and is determined by the Tribunals.
Legal cases provide insights into how courts have dealt with similar situations. In the case of Cannon Industries Ltd v Edwards, the court ruled that assembling and selling electrical appliances was an extension of existing trading activities. Similarly, in The Howden Boiler & Armaments Company Ltd v Stewart, the court considered the company as operating two departments rather than two separate businesses. Conversely, in Scales v George Thompson & Co Ltd, the court determined that the company was engaged in two distinct trades.
Professions and vocations may have different considerations. In the case of Moore v HMRC, a musician's income from teaching was deemed part of their overall self-employed musician income.
If the client operates two separate trades and one incurs losses, those losses cannot be set off against the profits of the other trade. However, terminal losses within the final 12 months of trading can be offset against profits from the same trade.
Based on the provided information, it appears that the retail business is separate from the plumbing business rather than an expansion. Nevertheless, a detailed examination of the facts is essential before making a conclusive determination.