VBNB20250 | VAT Business and non-business basic principles: The Meaning of Business

Section 94 (1) provides a wide-ranging definition of the term ‘business’ to include any trade, profession or vocation.

Business activities are those of persons supplying goods or services including exploiting tangible or intangible assets with the intention of generating income by doing so on a continuous basis.

In most cases it will be clear whether an activity is “business” and should fall within the scope of VAT, examples that are clearly business include:

• A sole proprietor builder who earns his living from his trade

• A retailer selling groceries from a shop

• A lawyer providing legal advice for a fee

• A large manufacturer of components for sale

The Courts have held that business activity is both:

a) wide in scope to allow a far-reaching interpretation; and

b) objective in nature. The character of the activity must be taken into account and not the intention of the taxable person, or the purpose or result of the transaction.

Case law has established that the business test must be applied to each activity separately without regard to the purpose or motive of the taxable person. While the intention of generating income is a component of the test, that is not the same as the intention to generate a profit. A supply can still be a business activity if it is intended that the income will be lower than the cost.