HMRC has updated its VAT Notice 701/1 How VAT affects charities to reflect the two-stage test which needs to be applied when deciding if activities are business or non-business activities. This is of particular importance for charities which are deciding whether to construct a building that is to be used for their activities and whether the construction is likely to be zero-rated for VAT purposes. VAT Notice 708 Buildings and construction sets out helpful guidance on this point at para 14.7.4.
The two-stage test for deciding whether an activity is a business activity for VAT purposes is as follows:
stage 1: the activity results in a supply of goods or services for consideration; and
stage 2: the supply is made for the purpose of obtaining income.
In Revenue and Customs Brief 10/22 HMRC announced that it would follow this two-stage test in determining whether an activity is business or non-business, departing from the previous 'six indicators' of business in Morrison's Academy [1978] STC 1, about which it said: 'Businesses can no longer rely on the old “business test” to decide whether an activity is business or not, but it can be used as a set of tools designed to help identify those factors which should be considered.'
HMRC has updated its VAT Notice 701/1 How VAT affects charities to reflect the two-stage test which needs to be applied when deciding if activities are business or non-business activities. This is of particular importance for charities which are deciding whether to construct a building that is to be used for their activities and whether the construction is likely to be zero-rated for VAT purposes. VAT Notice 708 Buildings and construction sets out helpful guidance on this point at para 14.7.4.
The two-stage test for deciding whether an activity is a business activity for VAT purposes is as follows:
stage 1: the activity results in a supply of goods or services for consideration; and
stage 2: the supply is made for the purpose of obtaining income.
In Revenue and Customs Brief 10/22 HMRC announced that it would follow this two-stage test in determining whether an activity is business or non-business, departing from the previous 'six indicators' of business in Morrison's Academy [1978] STC 1, about which it said: 'Businesses can no longer rely on the old “business test” to decide whether an activity is business or not, but it can be used as a set of tools designed to help identify those factors which should be considered.'
