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anonguest

Income Tax Hypothetical

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This one should possibly really go on a dedicated money/finance chatboard website rather than HPC - but the quality of knowledge and opinion I have seen on some of the better known such websites has made me cringe sometimes. So I place my trust in the varied erudite and knowledgeable opinions of fellow HPC'ers

A hypothetical relating to Income Tax.......

What is the situation regarding individuals selling 'products' resulting from their 'creativity' and skills in their own free time (i.e outside of their official source of employment/income source)?

What I mean is, how are one-off capital gains treated when the capital gain results from someones personal efforts, such as a hobby. It might be amateur clock making or even something cerebral, rather than physical, such as a useful/novel computer software.

Hypothetical example. Someone makes high quality antique reproduction clocks from scratch as a hobby and labour of love in their home workshop/garden shed/etc. Someone sees one of the creations on clockmakers home mantelpiece/top of cupboard/etc. Viewer admires the work and offers £10,000 for it. Clockmaker duly sells the clock for cash or personal cheque. How is the gain regarded by HMRC in respect of tax liable? Is any tax liable? As an additional background detail, let us assume that the clockmaker buys no materials and uses only scrap metal, wood, etc - so that there is no issue of 'expenses' or costs.

The main point being that the sale is a one-off and not intended to be repeated - certainly not within a lengthy period of time.

Thanks in advance.

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The main point being that the sale is a one-off and not intended to be repeated - certainly not within a lengthy period of time.

Thanks in advance.

Nothing happens hell the CGT limit is 10500 this year anyway.

You could tbh argue it as selling a chattle or you could argue it as a single one off disposal event Or simply you don't tell HMRC.

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Nothing happens hell the CGT limit is 10500 this year anyway.

You could tbh argue it as selling a chattle or you could argue it as a single one off disposal event Or simply you don't tell HMRC.

Duh! I forgot about the CGT limit, and picked £10,000 as a figure out of the air. The sum involved in the sale could be substantially more (say for modern art, etc).

Also, how long a time period would need to elapse for said clockmaker/painter/amateur computer programmer/etc until he/she could sell another of their creations, without inviting accusations that it is being done as a 'business activity'.

Agree on the comment about simply not bothering to tell HMRC - and that the odds are slim anyone of concern would ever find out. BUT...since I am querying the issue on potentially large cash amounts, they may have to be 'explained' at some unknown point in the future for some unrelated reason. Not easy to hide a one-off cheque payment for, say, £15,000 - IF someone had reason to trawl/inspect your bank records.

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Hypothetical example. Someone makes high quality antique reproduction clocks from scratch as a hobby and labour of love in their home workshop/garden shed/etc. Someone sees one of the creations on clockmakers home mantelpiece/top of cupboard/etc. Viewer admires the work and offers £10,000 for it. Clockmaker duly sells the clock for cash or personal cheque. How is the gain regarded by HMRC in respect of tax liable? Is any tax liable? As an additional background detail, let us assume that the clockmaker buys no materials and uses only scrap metal, wood, etc - so that there is no issue of 'expenses' or costs.

Speaking from ignorance ...

That's not a capital gain, it's a business. OK, as you describe it it's just an accidental business (like the accidental landlords we know about on HPC), but you've made and sold something of value. Technically speaking, what you make from it is self-employed earnings and should presumably be declared alongside whatever other earnings you have.

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Speaking from ignorance ...

That's not a capital gain, it's a business. OK, as you describe it it's just an accidental business (like the accidental landlords we know about on HPC), but you've made and sold something of value. Technically speaking, what you make from it is self-employed earnings and should presumably be declared alongside whatever other earnings you have.

It's not quite a business though as there is no continuation and no motive for carrying on. I think this has been tested a few times by HMRC. A man and bog roll, he bought several thousand pounds of bog roll stored in his home. He sold it and claimed he needed the money. He then went out and bought more bog roll presumably to sell again. HMRC took the view that he was selling it as a trade and thus it was taxable income.

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What is the situation regarding individuals selling 'products' resulting from their 'creativity' and skills in their own free time (i.e outside of their official source of employment/income source)?

Hypothetical example. Someone makes high quality antique reproduction clocks from scratch as a hobby and labour of love in their home workshop/garden shed/etc. Someone sees one of the creations on clockmakers home mantelpiece/top of cupboard/etc. Viewer admires the work and offers £10,000 for it. Clockmaker duly sells the clock for cash or personal cheque. How is the gain regarded by HMRC in respect of tax liable? Is any tax liable? As an additional background detail, let us assume that the clockmaker buys no materials and uses only scrap metal, wood, etc - so that there is no issue of 'expenses' or costs.

The main point being that the sale is a one-off and not intended to be repeated - certainly not within a lengthy period of time.

Thanks in advance.

The key is intention. If something is done with the intention of making a profit then it is regarded as a trade and any profits generated are taxable. Sometimes an individual may accidentally engage in trading. If an activity engaged in as a hobby culminates in selling the product of the hobby, like the clocks used in your example.

There are grey areas because you could argue that you produced the article for enjoyment and later decided to sell it because you no longer wanted it. The sale of unwanted personal household articles for example is not a trade because the items were not purchased with the intention of resale. That argument could not be used if the items were produced and sold frequently or purchased with the intention of reselling them. Although it is conceivable that something could be produced on a one off basis with the intention of selling it for a profit. The example used by Ken where a single consignment of goods (the case did concern a consignment of toilet paper) was held to be a trade and the profits liable to tax.

Any resulting profits should be declared on a self assessment tax return as other income. Pragmatically unless it is done on a large scale or very frequently it is unlikely to be of much concern to HMRC.

The question of Capital Gains Tax does not arise on the disposal of personal chattels with a value less than £6000 or on wasting assets. The clock in your example would not be liable for Capital Gains Tax because it is regarded as a wasting asset. If total Capital Gains are less than £10,100 they need not be declared. What a lot of taxpayers aren't aware of is that you are obliged to report all sales of personal possessions and private property if the disposal proceeds in any tax year are greater then 4 times the annual exemption limit. So when you sell your house for more than £40,400 you should report the sale on your tax return even though no CGT is payable because it is covered by the Private Residence Relief exemption.

Another point if anyone is concerned that they have not paid enough tax they can always make a voluntary donation to the Treasury.

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The question of Capital Gains Tax does not arise on the disposal of personal chattels with a value less than £6000 or on wasting assets. The clock in your example would not be liable for Capital Gains Tax because it is regarded as a wasting asset. If total Capital Gains are less than £10,100 they need not be declared. What a lot of taxpayers aren't aware of is that you are obliged to report all sales of personal possessions and private property if the disposal proceeds in any tax year are greater then 4 times the annual exemption limit. So when you sell your house for more than £40,400 you should report the sale on your tax return even though no CGT is payable because it is covered by the Private Residence Relief exemption.

Many thanks indeed. Have learned something new and interesting there.

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As mentioned all down to definition of whether you're engaging in a trade/business.

Thing to watch is people you're selling to asking for/demanding receipts.

If that person then undergoes a tax investigation/inspection I seem to think it's common for them to go through receipts/invoices and check the person/business issuing them is on their radar.

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The US even has a website so you can match Ben's printing with your own hard-earned, and donate money 24/7:

https://www.pay.gov/paygov/forms/formInstance.html?agencyFormId=23779454

(I imagine my visit to get the link was the first time any bits have altered in that server for many years.)

Seem to think I read somewhere quite a few people leave their money to the government deliberately in their will.

Assume they're even further up the bonkers scale than the ones who leave to a cat's charity.

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Fug it, just don't tell them.

You'll never receive anything back anyway. Its why I don't particularly care about tax evaders or avoidance since they are doing the only smart thing*

*Just had a run through of what I can get due to unemployment and the answer is virtually nothing! Meh, if I could fiddle my payroll taxes I would.

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Fug it, just don't tell them.

You'll never receive anything back anyway. Its why I don't particularly care about tax evaders or avoidance since they are doing the only smart thing*

The stock reply is "tax is the price we pay for living in a civilised society. "

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The stock reply is "tax is the price we pay for living in a civilised society. "

Sure sure, but there is tax and there is tax..... other nations tax less an awful lot less yet manage to provide (almost) all of the services which we are accustomed to in the UK, such as police, NHS, subsidised scripts and social protection/council housing.

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Sure sure, but there is tax and there is tax..... other nations tax less an awful lot less yet manage to provide (almost) all of the services which we are accustomed to in the UK, such as police, NHS, subsidised scripts and social protection/council housing.

Ah yes, but not diversity co-ordinators.

And our elf and safety is world class.

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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