This is day 10 of our Tax & Accounting at Christmas Special, as we analyse the tax and accounting treatments of all things Christmassy and open a door in our Christmas Advent calendar to count down each working day until the Christmas holidays in the UK. 

The Market Trader

According to St Matthew's account of the Nativity, three Wise Men ('the Magi') came bearing gifts to visit the baby Jesus. There was of course, no online shopping back then, and all towns and villages still had buoyant markets and high streets. The Magi may well have purchased their gifts of gold, frankincense and myrrh from traders who brought their goods from afar.

This time we look at market traders. 

Accounting

  • If the business is unincorporated a market trader can choose whether to use the Cash basis or the accruals basis. 
  • Accounting for stock and work in progress is only required if you are using the accruals basis.
  • At this time of year stock levels should be decreasing if sales are increasing.

Tax

 

Profits are calculated according to the accounting method chosen.

Expenses:

  • Expenses must be incurred Wholly and exclusively for the purpose of business to be deductible.
  • Private use adjustments will be required where a trader takes his own goods out of stock for private consumption.
  • The type of costs that can be claimed depend on whether the business is claiming Flat (fixed rate) deductions or Actual costs.

Travel

  • Travelling expenses are allowed for the costs of business journeys, e.g. to purchase stock or do the banking.
  • Travelling costs to and from home and any fixed or permanent or regular workplace are not usually allowed. This follows case law. The type of journey where travel might be disallowed would be the journey from home to the yard to pick up the stall, or the journey from home to a regular market.
  • The cost of travel to an annual Christmas market would be allowed if it was held in a different location to the normal markets.
  • If the business is based at home and the stall, van and stock are all located there, the journey from the home business base to market should be allowable.

Assets used by the business

  • Capital allowances are available for the cost of your stall and your van.
  • Private use adjustments will be required for vehicles that are used privately.

Difficult areas:

Trading allowance: small scale trades

  • If your trading income does not exceed the £1,000, you can claim the Trading Allowance there is no need to register for Self Assessment and declare or pay tax on that income.
  • If your income exceeds the allowance, you must register for Self Assessment and you may elect to deduct the £1,000 allowance instead of claiming tax relief for allowable expenditure.

Loss relief:

  • The trade must be commercial in order for losses to be available for set off against other income (sideways loss relief).
  • If you are selling your handcrafted items or home produce and consistently making losses your losses will not be available for sideways relief unless you have reasonable expectation of profit. See Losses (sideways): restriction for uncommercial trades.

Links to our subscriber guides:

A-Z Guides: Market Traders
A topical guide that covers what expenses to claim, VAT issues and a summary of the key case law featuring market traders.

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