VBNB30400 | VAT Business and Non-Business: Principles: Taxable person with more than one activity

A taxable person may undertake more than one activity. Some of these may be business for VAT purposes and some non-business (VBNB30200 and VBNB30300)

You will need to consider each activity separately and apply the test set out in VBNB30200 to decide if the activity is business or not for VAT purposes. Where it is established that VAT costs have been incurred on goods and services used for both business and non-business activities, an apportionment will normally be required. However, where the non-business activities are private ones, full recovery of VAT incurred relating to both business and non-business can in some cases be claimed upfront with output tax been accounted for on private use. VAT Input Tax guidance VIT25510 provides information on this alternative method.

Businesses may have just one activity but within this they may have transactions that are subject to VAT and those that are not. VAT on costs which relate to both will need to be apportioned because there is only a right to deduct VAT on taxed transactions.

Activity is not defined in law and so it must be given its plain, ordinary, or literal meaning. When considering whether an activity is a separate activity, much will depend on the specific facts and circumstances of the activities in question. It is important to consider the underlying substance and reality, particularly where this is shown to result in a fair and reasonable outcome, with the VAT recovery reflecting the underlying usage.

When considering the facts in a specific circumstance, the types of questions that may be relevant could include:

• Is there an independent objective being pursued and separately managed?

• Is there a discrete and separate cost base, reflected in accounts?

• Are there supplies made to a specific set of customers, that is distinct from the broader customer base?

• Is what is being carried out solely to enable downstream supplies?

• Does what is being done only occur in relation to specific supplies?

For example, where a retailer provides car parking specifically to enable customers to park close to the shop, in order that they can easily visit the retailer’s premises and buy goods, we would see this as part of the retail (business) activity. This would remain the position even if parking charges are made once any free period expires.