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This article helps you understand the different business types for UK Corporation Tax and how to choose the right one for your company.

Trade

A trade is a business carried on with the intention of making profits from providing goods or services. It normally involves:

  • regular, organised activity,
  • customers or clients,
  • a commercial profit-making aim.

Examples

  • An IT consultancy providing services to clients.
  • A company running restaurants and cafés.
  • A retailer selling clothing online.

Property business

A property business covers income and expenses from land and buildings the company rents out. This usually includes residential or commercial lettings.
Expenses: property costs such as repairs, insurance, security, and letting agent fees are deducted in the property business, as well as costs of running the business such as managing the finance and HR functions.

Examples

  • A company that owns and rents out a block of flats.
  • A company that leases office space to tenants.

Investment business

An investment business is where the company’s business consists of making and holding investments. Investments may be held for income (dividends, interest, rent) or for capital growth (gains on sale). They are not limited to financial instruments, property can also be an investment.

Expenses: costs of managing the investment business are deducted as management expenses.

Examples

  • A holding company making and managing share investments in the other companies within the same group.A company holding a portfolio of bonds with a view to capital gains.
  • A company with a mix of listed shares and securities.

Mixed or hybrid businesses

A company may carry on more than one type of business at the same time. Profits and expenses are calculated separately for each.

Examples

  • Trade + Property A construction company that also rents out part of a warehouse.

  • Trade + Investment A consulting business that also makes investments in shares.

  • Property + Investment

Owning and letting property can mean the company is carrying on both:

  • a property business for rental profits, and
  • an investment business for managing the property investments.

In this case:

  • day-to-day property costs (repairs, agents’ fees, insurance) may be deducted in the property business, and
  • wider management costs (directors’ fees, office/admin, portfolio oversight) may qualify as management expenses of the investment business.
  • Trade + Property + Investment: A retailer that sells goods, lets out flats above the shop, and holds an investment portfolio.

Why this matters

Getting the type of business right is important because it affects:

  • How profits are calculated – trade, property, and investment businesses each have their own rules.
  • What expenses can be deducted:
  • trade expenses are dealt with under the trading rules;
  • property expenses (repairs, agents’ fees, insurance) can be set against property income;
  • management expenses of an investment business (directors’ fees, admin, costs of managing the portfolio) may be deducted from total profits.
  • Loss reliefs and other tax rules – the way losses are relieved depends on which business they come from.

Correct classification ensures expenses are not lost and profits are taxed under the appropriate rules.