This first tier tribunal looked at the whether a trade was being carried out
A retired doctor, Dr K M A Manzur, was share dealing in shares and was trying to treat the income as trading income rather than investment income.
Manzur had claimed losses in 2007 that were offset against general income. Further losses occurred in 2008 and some of that was set against general income.
Manzur contested that the his share dealing activity was a trading transaction as they were conducted over short periods, usually two weeks, and there were thousands of such transactions in a year.
All the risks were taken by him personally, he maintained control of buying and selling and he used his own equipment for transactions with the assistance of stockbroker at £12 per transaction.
HMRC took the stance that this was not a genuine trade, stating that:
It was shown some share holdings were retained for longer than six months.
HMRC pointed out the following characteristics displayed by share traders:
It was concluded that Manzur was not carrying on a trade; rather, 'They are more in the nature of the management of an investment portfolio which necessitates changes in investment by buying and selling shares with some investment stock held for longer periods.'
Manzur only managed his portfolio for two hours in the afternoon, further evidencing this was not a genuine trade. This was reflected by a comment made by Manzur in a letter sent to HMRC:
'I have full control over my portfolio of shares and am the sole bearer of any risk and reward associated with my financial transactions.'
The judge referred to key decisions that established key principles. The first was the definition of speculation:
Lewis Emmanuel & Son Ltd v White [1965] 42 TC 369
'The word “speculation” is not, I think, as a matter of language, an accurate antithesis either to the word “trade” or to the word “investment”: either a trade or investment may be speculative.
On the other hand, it is certainly true, at any rate in the case of an individual, that he may carry out the whole range of financial activities which do not amount to a trade but which could equally not be described as an investment, even upon a short term basis.
These activities include betting and gambling in a narrow sense. They also include, it seems to me, all sorts of Stock Exchange transactions.
For want of a better phrase, I will describe this class of activities as gambling transactions…'
The second was defining the 'badges of trade':
Salt v Chamberlain [1979] 53 TC 143
'… I doubt whether the question whether in any given case a person is or is not carrying on a trade is capable of solution by the application of a logical progression of propositions culled from decided cases. The question is, I think, one of overall impression'.
The third laid down the principle for share trading:
Cooper v E & J Clark [1982] 54 TC 670
'First, marketable securities, being income producing assets usually capable of increasing in value, are prima facie purchased and sold by way of investment and not by way of trade.
Secondly, a series of purchases and sales may sometimes, if carried out pursuant to a deliberate and organised scheme of profit-making, amount to a trade.
Thirdly, it is easier to characterise a series of purchase and sales as a trade in a case where they are made by a trading entity as opposed to an individual.
Fourthly, in the case of a trading entity that characterisation is more easily made where the purchasers and sales are substantial in relation to its other activities, all the more so where they are of frequent occurrence and extend over a long period of time…'