Incorporation relief can cover business activity below 20 hours a week

Individuals spending fewer than 20 hours a week on their activities may still be carrying on a business for incorporation-relief purposesGOV, HMRC now expressly confirms. Its Capital Gains Manual tells staff to establish the facts and apply the business indicators when considering those casesGOV. Advisers should assess the substance of the activities instead of treating fewer than 20 hours as an automatic disqualification.

The clarification concerns whether activities amount to a business under section 162. HMRC retains its instruction to accept incorporation relief where an individual spends at least 20 hours a week personally undertaking activities indicative of a businessGOV. For lower-hours cases, the previous instruction was simply to consider other cases carefully. It now explains that the activities may still qualify as a business and directs staff to the same factual assessmentGOV.

HMRC's listed indicators cover whether there is a seriously pursued undertaking or occupation; active pursuit with reasonable or recognisable continuity; substance in turnover; regular conduct on sound, recognised business principles; and activities of a kind commonly undertaken by people seeking profit. The extent of the activities is an additional important factor. For an adviser reviewing a lower-hours case, those are the matters to address alongside the individual's personal time commitment.

The manual discusses Ramsay v HMRC and says the relevant consideration is the degree of activity as a whole, rather than its extent compared with the number of properties or lettings. It records that Mrs Ramsay's work on her property, at about 20 hours a week, was sufficient to indicate a business. That example informs HMRC's guidance, but the added wording expressly recognises that a lower time commitment can still amount to a business.

The business assessment is one part of the statutory conditions. Section 162(1) concerns a person who is not a company transferring a business as a going concern to a company, with all its assets or all assets except cash, wholly or partly in exchange for shares issued to the transferor. HMRC also explains that business is broader than trade and that each case depends on its facts.

The legal basis is the Taxation of Chargeable Gains Act 1992, section 162, with HMRC's interpretation in CG65715 referring to Ramsay v HMRC [2013] UKUT 0226 (TCC).