HMRC have updated the section in their Business Income Manual which deals with ‘Crisis-driven changes to trading activities’ to specifically cover Coronavirus. This is our enhanced version of the guidance.

Changes in trading activities

When a business starts carrying out an entirely new trade, completely unrelated to its previous activities, it is normally treated as the commencement of a separate trade.

  • If the new activity is broadly similar to the existing trade it will not be a separate new trade and profits or losses should be merged with those of the existing trade.
  • It will be a question of fact whether there is a new trade or an extension of the existing trade.

HMRC give the example of a restaurant business which starts manufacturing gowns and face masks and should be treated as the commencement of a separate trade. Whereas if a business that is already manufacturing clothing starts to manufacture gowns and face masks using the same staff and premises, it should be treated as an extension of the same trade.

Temporary breaks in trading activity

  • Temporary breaks in trading activity are not a permanent cessation of trade for tax purposes. 

For example, where a business closes its doors to customers, or otherwise stops trading during the COVID-19 lockdown period but intends to continue trading once restrictions are lifted, the trade will not be treated as ceasing, as long as, when activities resume, they are the same as those before the break.

  • Where, in the end, that business does not resume, there will be a cessation.
  • Where there is a cessation but a new trade has commenced and there are losses, care will be needed to ensure relief is maximised. For sole traders overlap relief should be considered.

See Losses, trade losses and sideways relief and Company losses: Trading and other losses

Donations of goods and services

  • The cost of gifts and donations is generally disallowable, but there are provisions that allow particular donations. Cost of small gifts with conspicuous advertising for the trader are generally allowable. See Self-employed: Gifts and Gifts (to staff, customers & charities).
  • Profit foregone on goods supplied at discount to the normal cost should not be considered a gift if the transaction is part of the trade and the trader’s costs have been covered.
  • Where the recipient of a gift has provided a service to the business, no deduction should be given for the gift unless it can be shown the trader was under an obligation to provide it.
  • If stock is donated to a charity the trader does not have to bring in any receipt for it. This also applies to donations of medical supplies and equipment, whether to a charity or not.
    • Examples of medical supplies and equipment include face masks, gowns, hand sanitiser and ventilators plus the costs of packaging and distribution.
    • This only applies to companies, not sole traders or partnerships.
  • If stock is donated to a non-charitable body or individuals, the amount it would have realised if sold in the open market must be brought into the calculation of trading profits. Noting that in the exceptional circumstances of a crisis like the Coronavirus ‘lockdown’ period, market value must be considered in context and may be different to that in ’normal’ circumstances.
  • Employer costs of staff seconded to charities and educational establishments are specifically allowable as trade deductions.
    • Where staff are seconded to other bodies, the costs are allowable only if the secondment is wholly and exclusively for the purposes of the trade.


Some businesses may offer partial refunds to customers such as, during the ‘lockdown’ period, on car insurance policies, gym and cinema memberships or other subscription-based services. Where these are included as trade expenses in Generally Accepted Accounting Practice-compliant (GAAP) accounts they should be allowable for tax, assuming that the original receipt was included in the calculation of trade profits.

Income received 

Businesses may have sought donations of money to enable them to supply products or services. 

  • Receipts intended to meet revenue expenditure, or supplement trade income, are taxable as trading receipts.
  • Casual income received in return for services is taxable as miscellaneous income. If it is less than £1,000 the trading and property allowance applies, noting where the allowance is claimed no relief is available for expenses.

Revenue expenditure

Revenue expenditure recognised in the accounts under UK GAAP, or brought into account under the cash basis, will be tax-deductible unless denied by specific legislation/case law.   

  • Have the costs been incurred wholly and exclusively for the purposes of the trade?
  • What are the aims and objectives of those who decided to commit to the expenditure?
    • Where the facts show the reasons were philanthropic, not business-focussed, the expense will be disallowable.
    • If an identifiable part or proportion of the expenditure can be identified as incurred wholly and exclusively for the purposes of the trade, that part or proportion is allowable. Records should be kept accordingly.


This is not covered by the HMRC Business Income Manual but the VAT implications of the above should not be overlooked.

Certain items which business may now be manufacturing and/or selling may require different VAT treatment, for example, PPE is zero-rated until 31 July 2020 and certain health and welfare goods and services are exempt.


Health and welfare: VAT 
Reduced rating, zero-rating and VAT exemption can apply to various services relating to medical care, health and welfare.

COVID-19: Temporary zero-rating for PPE
The government has announced that sales of Personal Protective Equipment (PPE) to protect against COVID-19 will be zero-rated for VAT from 1 May 2020 until 31 July 2020.

COVID-19: Government support tracker
This tracker covers measures announced by the government to support individuals and businesses, as we get through COVID-19.

Companies: trading, non-trading and accounting periods
This guide covers when a company is active, trading, non-trading, or dormant, what the tax filing obligations are for each and the tax accounting periods.

Badges of Trade: Are you trading or not?
The 'Badges of Trade' are a series of key indicators which have been built up over time by the courts to decide whether a transaction or series of transactions constitutes a trade.

Ceasing trading Index: what are your options?
When a company ceases trading it can voluntarily apply to be struck off the companies register, be wound-up by a liquidator under a compulsory or members voluntary liquidation or be left dormant.

Discounts, Reward Schemes & Vouchers: VAT
Loyalty and reward schemes come in various shapes and sizes and the VAT implications may vary depending on the type of scheme offered. In this guide, we cover some common schemes.

This Practical Tax Guide examines the tax treatment of business gifts for business owners. 

When do I have to deregister for VAT?  When can I voluntarily deregister?  What penalties might HMRC issue if I am late notifying them of a mandatory deregistration?

External link

BIM48000 Crisis-driven changes to trading activities