HMRC: Business And Non-Business Activities For VAT Purposes

HMRC has published a new policy paper, explaining how it determines if an activity is classed as 'business' for VAT purposes. Revenue and Customs Brief 10 (2022) makes for an interesting read ...

HMRC has changed long-standing policies following a number of recent test cases. These changes are relevant for charities, non-profits, nursery or creche facilities, businesses that receive grants and subsidies, and those organisations carrying out non-business activities

"Previously, a 'business activity' was possible, even in the absence of a profit motive!"

But HMRC no longer applies this business test when determining whether an activity would be classed as a business activity. In future, a new two-stage test should be considered when determining if an activity is, in fact, a business activity.

Stage 1 - A supply of goods or services for consideration

There must be a legal relationship between the supplier and recipient. Is the supply made for a consideration? If not then the activity can not be classed as a business activity for VAT purposes.

Stage 2 - The supply is made for the purpose of remuneration

If you receive a payment for the supply of goods or services, then the activity is regarded as economic and would be a business activity. However, the activity must be for the purpose of obtaining income, even if you charge the recipient below cost.

The 'business test' criteria that we've all used for years can no longer be relied on according to HMRC, so this new two-stage test should be used instead.

If you feel inspired to find out more about anything I've said here, do call me on 01908 774320 or leave a comment below and I'll be in touch as soon as I can.