BIM40410 - Receipts: government support for new businesses: enterprise rehearsal scheme and ‘test trading’

The government runs schemes to help those who wish to set up their own small businesses or to help those who have recently done so. These schemes cover basic business training, planning, marketing, skill training etc. As part of the scheme, the individual may put the business idea into practice. This enables the individual to experience the realities of self-employment while still receiving advice and support. This period lasts for either three or six months.

Examples of these schemes include New Deal 25 plus, which offers individuals the option of a period of ‘test trading’ and enterprise training, which includes a period called ’enterprise rehearsal’, where the business idea is put into practice.

Whilst on the schemes, the individual runs the business but financial control is with a training manager (who will typically be involved through a local enterprise agency or similar), who has to authorise all expenditure. There is no formal contract between the manager and the individual, and the manager is the proprietor of the business. The individual receives none of the income generated by the business during the test trading or rehearsal period. Any money not used for business purchases during the period is paid over to the individual at the end of it and they continue the business on their own.

Because the training manager is obliged to hand over the ’profit' at the end of the scheme, it is accepted that the manager is not assessable.

The individual only becomes entitled to the profits in their own right when the rehearsal or test trading period ends, but for trading income purposes it is necessary to decide the date on which the trade commences. This is considered to be when services or goods are first offered for sale. This has the advantage for the individual that the profits of the three or six-month period are not condensed into one day.

The rules of the scheme permit the individual to purchase stock and equipment out of their own resources and also permit the purchase of equipment out of income generated by the business. It follows that the amount handed over to the individual at the end of the test trading/rehearsal period will not represent the trading profit for that period.