Running more than one self-employed business? HMRC will not always treat them as separate. Whether they are taxed as one combined trade or multiple depends on how your activities relate to each other. It is not a matter of choice, it is about how your business is run in practice. Get it right to avoid costly mistakes.
When someone has more than one self-employed income, one of the key issues to consider is whether to combine all profits under a single business activity or treat each separately. This depends on the nature and relationship of the activities. HMRC’s manuals set out three possible scenarios:
1. Separate Trades
If the new activity is run independently, with different staff, stock, or customers, it is treated as a separate trade. This means each business is taxed individually, and the commencement rules apply to the new one. No merging takes place unless operations later combine in substance.
2. A New Single Trade
If the new activity transforms the original business significantly, so much so that the old trade effectively ends, then both are treated as forming a new trade. The cessation rules apply to the original trade, and commencement rules apply to the new, combined business.
3. Continuation of Existing Trade
If the new activity merely expands the existing business without fundamentally changing its nature, it is treated as a continuation. Profits are combined and taxed as one ongoing trade, with no change in basis.
Understanding whether activities form one trade or multiple is crucial for correct tax treatment. It’s not just a matter of choice. It also depends on the facts and how the businesses operate and interact.
We would be happy to help you review the structure of your business to ensure compliance with HMRC guidance and avoid unexpected tax consequences.
