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Sole traders

The profit generated by an individual performing a trade, profession or vocation in their own right as a self-employed person (ie not in partnership or trading via a company) is known as 'trading income'. The umbrella term 'trade' is commonly used in practice (and in the commentary below) to refer to a trade, profession or vocation.

For the purposes of the UK income tax calculation, trading income is non-savings income. See UK1.5.1. 'Trading income' is the legislative term used to mean the net profit from the trade, ie income less trading expenses that are allowable for UK income tax purposes.

If the individual has started a new business and it is necessary to decide if this is a 'trade' as opposed to a non-commercial or hobby activity, a set of principles from case law known as the 'badges of trade' must be applied. See BIM20000. This is important because the UK income tax relief for losses from a trade are very generous, whereas if the business is not a trade the losses may