BIM66655 - Timber merchants: owner occupation of woodlands

Where a timber merchant buys and becomes the occupier of woodlands from which to draw supplies for the merchanting business, he or she should be regarded as acquiring a capital asset the cost of which is capital expenditure. Profits arising from the occupation of commercial woodlands are not to be regarded for any purposes as chargeable to tax as trading profits by virtue of FA1988/Sch6/para 3(2). Trading profits arising from carrying on the business of timber merchant continue to taxed in the normal way.

Following CIR v Williamson Bros [1950] 31TC370, Collins v Fraser [1969] 46TC143, and ITTOIA/S172C and FA08/schedule 15/S7 for CT purposes. ):

1. timber from felled trees taken into the merchanting business should be treated as purchased at market value in computing the profits of that business.
2. the activities of the occupier of commercial woodlands which amount to no more than normal preparation for marketing the timber, up to the point of sawing into planks, are exempt from Income Tax for periods after 14 March 1988. For periods up to 14 March 1988, these activities should be regarded as covered by the Schedule B assessment. In either case, sales of timber processed only to that extent should be excluded from the computation of trading profits as should the expenses incurred in felling and preparing it to that stage. Where activities that go beyond normal marketing take place, the timber should be regarded as appropriated to the merchant’s trade at the market value of the sawn planks with subsequent sales being included in the trading accounts at their full value.