The precise date on which a trade commences can be very significant for tax purposes. For example, it can impact the availability of valuable investment incentives such as Enterprise Investment Schemes (EIS) and Business Asset Disposal Relief (BADR), as well as the Substantial Shareholding Exemption (SSE), and can be potentially relevant for more general questions such as when an accounting period commences or when tax should be due.
In addressing that question, it is common to focus on how it has been approached in the case law on the subject. Particularly influential in recent years has been the guidance provided by Special Commissioner Charles Hellier in Mansell v HMRC [2006] UKSPC SPC551. In that decision emphasis was placed on three factors:
- Is there a specific concept of the trade?;
- Has the trade been set-up (to the extent necessary)?; and
- Have operational activities begun?
These three ‘tests’ have been relied upon in a series of subsequent judgments, often being effectively treated as the primary way to ascertain when a trade commenced. However, the Upper Tribunal (UT) in Putney Power Limited v HMRC [2026] UKUT 105 (TCC) has sounded an important note of caution about too simplistically adopting that approach.
In Putney Power, the question was whether an electricity generating business had commenced trading within the relevant time limits for the purposes of the EIS legislation. Concluding that it hadn’t, the First-tier Tribunal (FTT) applied a principle it inferred from Mansell and other key decisions that a trade could not have commenced if not sufficiently set-up.
The UT, whilst agreeing that trade had not commenced, disagreed on the reasoning. The UT emphasised that the question being answered was a factual one: whilst earlier case law like Mansell could provide important illustrations of factors which it might be useful to consider, it was an error of law to see these as establishing potentially binding legal principles that could govern the answer to that factual question.
What was needed was a multi-factorial consideration of the facts to determine if a trade had commenced. Following this approach, the UT ruled that trade had not commenced by the relevant date. Like the FTT, the UT emphasised the lack of infrastructure, concluding that, on the specific facts of the case, the entering into contracts to allow it to sell power when the company became operational was preparatory in nature and not actually trading. Unlike the FTT, however, the UT did not think this conclusion followed as a matter of law, acknowledging that there may be circumstances where a company may trade before the infrastructure is fully set-up.
The decision in this case was eagerly awaited, as the FTT in Putney Power had reached the opposite conclusion to the FTT in Wardle v HMRC [2024] UKFTT 543 (TC) (Wardle 3), despite similarities in the fact pattern in both cases. The UT’s emphasis on the factual nature of the question means, however, that it would be mistaken to characterise its decision as a straightforward conclusion that the FTT in Putney was right and that in Wardle 3 it was wrong. The decision rather stands as a warning – relevant to factual questions more broadly and not just to the commencement of trade – of the dangers of seeking to answer factual questions by simplistically seeking to equate or differentiate the fact pattern with that in earlier cases.
The importance of factual questions (for example, has a person commenced trade? Do activities constitute a trade? What is a person’s purpose in doing something?) for many areas of tax means that the UT’s useful summary of the correct approach to handling earlier case law in relation to these (see paragraphs [40] – [46] of its decision) is a timely reminder well worth reading by anybody needing to grapple with these in practice.
On the particular question of when trade commences, however, the decision will disappoint those looking for bright line tests. The UT endorsed the value of the guidance which cases like Mansell can provide, but does not allow this to detract from the conclusion that the correct answer – as so often in tax – is ‘it depends’.
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