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Last updated: 22 Jun 2022
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Updated HMRC Policy on what constitutes a Business

HMRC has recently announced a change in its policy when considering whether or not an activity is a business activity for VAT purposes.

While there is no definition of what constitutes a business with VAT legislation, HMRC has for many years applied six tests that emerged from case law to reach a decision. These tests were:

  1. is the activity a serious undertaking earnestly pursued?
  2. is the activity an occupation or function that is actively pursued with reasonable or recognisable continuity?
  3. is the activity have a certain measure of substance in terms of the quarterly or annual value of taxable supplies made?
  4. is the activity conducted in a regular manner and on sound and recognised business principles?
  5. is the activity predominately concerned with the making of taxable supplies for a consideration?
  6. are the taxable supplies that are being made of a kind which, subject to differences of detail, are commonly made by those who seek to profit from them?

More recent case law has moved away from these criteria and in particular the Court of Appeal in Wakefield College [2018] EWCA Civ 952,applied a two stage test:

    Stage 1: The activity results in a supply of goods or services for consideration

If there is no supply in return for consideration there cannot be a business activity 

    Stage 2: The supply is made for the purpose of obtaining income therefrom (remuneration)

In the Wakefield case, the Court rule commented that merely receiving payment did not in itself mean an activity was an economic activity. Instead, to be economic, an activity must be carried on for the purpose of obtaining income on an ongoing basis.

It is noted that within the Revenue Brief there is specific mention of nursery and creche facilities and the cases of Yarburgh Children’s Trust [2002] STC 207 and St Paul’s Community Project [2005] STC 95. However, there is no comment as to whether the change of policy would affect organisations providing similar services. It will be interesting to see how the revised policy is applied by both HMRC and the Courts. 

In the meantime, please contact us if you would like to discuss these changes or any matters concerning your organisation.

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