HMRC issued Revenue and Customs Brief 10 (2022) in June with regards to whether an organisation’s activity was a Business or a Non-Business Activity. The brief can be accessed here.
A few years after the introduction of VAT, HMRC applied a six-stage test with regards to what constitutes a business activity. This was mainly based on a case heard over 40 years ago called Lord Fisher.
This has now been replaced by a two-stage test as a result of various cases that have been heard in the courts over the past few years.
If your activities qualify as non-business:
Of course, if income is business in nature it will be subject to VAT (unless the exemption can be applied) on the goods or services being supplied, whilst any VAT incurred on a taxable supply can be recovered.
Test 1: Does the activity result in goods or services being supplied for a consideration?
If the answer is ‘no’ you have a non-business activity and there is no requirement to proceed to Test 2.
Test 2: The supply is made for the purpose of obtaining income therefrom (remuneration)?
Is there a charge made which goes towards those activities costs, or the overheads of the charity which would allow a YES to be answered? Alternatively, is this a charge which is being levied just to ensure the customer is going to turn up or to honour the sale, which would then indicate a NO to the question.
HMRC appreciate that there may be difficulty in some instances in establishing whether or not an activity has been undertaken for the purpose of receiving income. Consequently, it refers in its guidance (VBN30300) to five factors to consider when arriving at the answer to this question.
HMRC has updated it guidance to reflect case law that can be relied upon by the tax payer. This two-stage approach does not really simplify the decision-making process and whether an activity is business or non-business in nature, will continue to be a matter of interpretation and dependent on the specific facts pertaining to each case.
However, two points are now clear:
It seems that this issue will continue to be an area of debate and further litigation as both tax payer and HMRC strive for clarity on the matter.
For more information or to discuss any of the points highlighted in this article, please contact [email protected] or your usual Crowe contact.
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