Active and passive income is accounting terminology used to describe how your business generates its income. We ask this because we need to know if 50% or more of your income comes from providing a service or trading.
Active businesses typically generate 50% or more of your income from trading or providing a service or trade and that you’re actively participating in. Active businesses may include manufacturing, buying and selling products. Some typical examples of active businesses are consulting, manufacturing, accountancy services, farming, retailing.
Passive businesses generally earn more than 50% of your income from passive sources such as rent or from assets that produce passive income like interest or dividends from shares. Examples of this would be investment management, rental income, royalties, landlords.