HMRC has published a new VAT Brief which reframes HMRC’s approach to determining whether an activity is a business activity for VAT purposes.
VAT Brief 10/2022 sets out the following two-stage test for determining whether an activity is a business activity:
the activity results in a supply of goods or services for consideration – requiring there to be a legal relationship with reciprocal performance between the supplier and recipient; and
the supply is made for the purpose of obtaining income therefrom (i.e. remuneration) – in essence, there is an economic activity.
This new policy follows the approach of the Court of Appeal in Wakefield College [2018] STC 1170, where the court also noted that, where there is a direct or sufficient link between the supplies made and the payments given, the activity is regarded as economic. The Brief notes, however, that ‘simply because a payment is received for a service provided does not itself mean that the activity is economic. For an activity to be regarded as economic it must be carried out for the purpose of obtaining income (remuneration) even if the charge is below cost.’
The Brief also confirms the following:
the two-stage test is the approach that should be taken in determining whether an activity constitutes a business activity;
HMRC will no longer apply the ‘business test’ based on the six indicators from Lord Fisher [1981] STC 238 and Morrison’s Academy [1978] STC 1 in determining whether an activity is ‘business’; and
although businesses can no longer rely on the old Fisher/Morrisons business test to decide whether an activity is business or not, it can be used as a set of tools designed to help identify those factors which should be considered.
HMRC explains its interpretation of the two-stage test in its VAT Business/Non-Business Manual at VBNB30200.
HMRC has published a new VAT Brief which reframes HMRC’s approach to determining whether an activity is a business activity for VAT purposes.
VAT Brief 10/2022 sets out the following two-stage test for determining whether an activity is a business activity:
the activity results in a supply of goods or services for consideration – requiring there to be a legal relationship with reciprocal performance between the supplier and recipient; and
the supply is made for the purpose of obtaining income therefrom (i.e. remuneration) – in essence, there is an economic activity.
This new policy follows the approach of the Court of Appeal in Wakefield College [2018] STC 1170, where the court also noted that, where there is a direct or sufficient link between the supplies made and the payments given, the activity is regarded as economic. The Brief notes, however, that ‘simply because a payment is received for a service provided does not itself mean that the activity is economic. For an activity to be regarded as economic it must be carried out for the purpose of obtaining income (remuneration) even if the charge is below cost.’
The Brief also confirms the following:
the two-stage test is the approach that should be taken in determining whether an activity constitutes a business activity;
HMRC will no longer apply the ‘business test’ based on the six indicators from Lord Fisher [1981] STC 238 and Morrison’s Academy [1978] STC 1 in determining whether an activity is ‘business’; and
although businesses can no longer rely on the old Fisher/Morrisons business test to decide whether an activity is business or not, it can be used as a set of tools designed to help identify those factors which should be considered.
HMRC explains its interpretation of the two-stage test in its VAT Business/Non-Business Manual at VBNB30200.
