Q38. How do I know if I am carrying on regulated activities by way of business?
1A person will only need to be an authorised person or exempt if he is carrying on a regulated activity 'by way of business' (see section 22 of the Act (Regulated activities)). There are, in fact, three different forms of business test applied to the home finance transactions (see Q38A).
Whether or not any particular person will meet the requirement that he carries on a regulated activity by way of business and so needs authorisation or exemption will invariably depend on that person’s individual circumstances. A number of factors need to be taken into account in determining whether the test is met. These include:
- the degree of continuity;
- the existence of a commercial element;
- the scale of the activity;
- the proportion which the activity bears to other activities carried on by the same person but which are not regulated; and
- the nature of the particular regulated activity that is carried on.
Corporate plan providers and those who provide professional services to them or to home occupiers are likely to be carrying on their activities by way of business. Unpaid individuals who act as trustees for home occupiers are not likely to be.
1 Q38A. What are the three different forms of business test referred to in Q38?
- the 'by way of business' test in section 22 of the Act applies unchanged in relation to the activity of entering into a home finance transaction;
- the 'by way of business' test in section 22 of the Act applies unchanged in relation to the activity of administering a home finance transaction, but another 'by way of business' test arises in relation to administering a home purchase plan because the plan being administered by way of business must itself have been entered into by way of business (see Q28); and
- in the case of arranging and advising, the effect of articles 3B to 3D of the Business Order is that a person is not to be regarded as acting 'by way of business' unless he is 'carrying on the business of engaging in one or more of those activities'.
Q38B. How does the business test in the Business Order differ from the business test in section 22 of the Act?
The 'carrying on the business' test in the Business Order is a narrower test than that of carrying on regulated activities 'by way of business' in section 22 of the Act as it requires the regulated activities to represent the carrying on of a business in their own right.
Q38C. Can you give me some examples where the business test is unlikely to be satisfied?
- when an individual enters into a one-off sale and rent back agreement as agreement provider for an agreement seller who is a friend or member of his family whether at market interest rates or not; and
- when a person provides a service without any expectation of reward or payment of any kind (but see PERG 7.3.4 G for examples of when the giving of ‘free’ advice in relation to home finance transactions might still amount to a business).
Q38D. Will I meet the business test if I only enter into one home purchase plan, home reversion plan or regulated sale and rent back agreement a year?
Yes, you might meet the business test. Whether or not you do will depend largely on the facts. The following issues may be helpful to bear in mind:
- the relevant business test here is not the narrower business test under the Business Order but the wider one under section 22 of the Act: that is whether the activity is being carried on by way of business (see Q38B);
- the expression “carrying on business” suggests the need for a degree of continuity in the activity. Hence, one-off or extremely infrequent acts would usually not be thought to be enough to satisfy the test. However, it is unlikely that a person could successfully claim that entering into a plan or agreement was a “one-off” or very infrequent act if, in all the circumstances, it cannot be shown that they intended this to be the case. This is because there is always a first time that any regular activity is carried on;
- some individuals are clearly in business as sole traders - they will represent themselves as running a business and be registered for VAT etc. Other individuals may not so clearly be in business. In the latter case, it is necessary to consider the scale of the potential regulated activity. Where a person expects to make a living, or a substantial part of their living, from entering into home finance transactions it is likely that they are carrying on such activities by way of business.