VBNB22120 | VAT Business and non-business basic principles: Non-business activities which result in payment

There are some activities carried out by organisations which could be income generating or for the purpose of raising capital but are non-business for various reasons. Examples of such activities are listed below:

Income generating activity

Admission of new partners into an existing partnership: When a new partner is admitted into a partnership for a capital contribution in cash, this is not a supply because there is no service provided by the partnership to the new partner.

Investment portfolio: Buying and holding shares and bonds is not a business activity because it does not amount to the exploitation of property. Any dividend is as a result of ownership rather than exploitation. However, the ownership of shares and bonds may go beyond simply holding them and involve their sale. This is not a supply for VAT purposes and it is only a business activity where the transactions are carried out as:

1. part of a commercial share-dealing activity;

2. the activity is a direct, permanent and necessary extension of a business activity, for instance the investment activity of an insurance provider underpinning the insurance.

For further guidance on capital raising activities, acquisition and holding of shares and new issue of shares see VIT40600.

Hobbies: People sometimes have hobbies that involve the making of supplies for consideration, for example selling duplicates from a collection such as stamps. These supplies are not automatically made in the course or furtherance of business, particularly where the sales are occasional. You should consider the factors in VBNB30300 to decide whether the activities constitute business or not.

It is unlikely that hobbies which involve a registered person making minimal supplies are business. However, in some cases the person’s hobby can lead them to make substantial supplies and may grow to become a business activity. Many successful businesses grow out of a hobby or private interest.

Disposal of private assets: The disposal of private assets is a non-business activity. If, however, the goods are sold through a business you will need to look at the circumstances carefully before deciding whether the sale can properly be regarded as being separate from the business.

When considering if a sale is indeed private you should consider the nature of the transaction carefully, in particular:

• are the goods sold of a type normally sold through the business?

• was the sale dependent upon the contacts and reputation of the business? and

• how were the receipts dealt with and accounted for?