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VBNB20100 | VAT Business and Non-Business Basic Principles: The term ‘Business activity’

From HM Revenue & Customs · VAT Business/Non-Business Manual

What might be described as business in other circumstances may not be business for VAT purposes . Anything done to further the commercial interests of a person may be regarded as business in general terms, but this is not the case when considering whether an activity is business for VAT purposes.

Equally, activities that might not be regarded as business in other circumstances, may be business for VAT purposes. For example, charitable activities which charge a fee may be business for VAT purposes but not for other purposes.

Activities of a taxable person should be examined separately to determine whether or not they are business activities. For example:

  • a sole proprietor will have private activities which may include hobbies

  • A charity will have its charitable activities and may also have business and non-business activities.

  • An organisation with the sole aim of making profit may have non-business activities.

For example a company that manages a car park, provides parking, security services and wheel clamping. They charge the owner of the land a small fee, but also get to retain the penalties from car owners when they issue parking tickets. The charge to the landowner results from a supply and is therefore a business activity. However, no supply is made when a parking ticket is issued to a car owner, so the activity which generates the penalty income is not a business activity for VAT purposes. This means that the VAT costs used in performing both activities will need to be apportioned; VAT costs capable of being wholly attributed to the taxable supply would be wholly deductible and that attributable to non-taxed activity would be wholly irrecoverable. [See Vehicle Control Services Ltd UT/2015/0191]

In determining whether something is business or non-business, it is important to consider whether there is a supply of goods and or services . Where there is a supply of goods or services, then apply the business tests to those supplies.