VAT - Business and Non-business Activities

  • Person icon Mark Morton
  • Calendar icon 20 June 2022 14:56

HMRC have recently released Revenue and Customs Brief 10 (2022): VAT - business and non-business activities. This Brief explained how HMRC now approaches determining whether or not an activity is a business activity for VAT purposes.

HM Revenue & Customs logo on a building.

HMRC previously accepted that where a charity supplies nursery and crèche facilities for a consideration that is fixed at a level designed to only cover its costs. This was not a business activity for business purposes.

Recent court cases have provided further clarification on how to determine whether or not an activity is a business activity. In determining this, there should be no reliance on an organisation’s overall objective or profit motive.

This may affect:

  • a charity
  • a non-profit making organisation
  • businesses providing nursery and crèche facilities
  • a business that receives grants or subsidies.

Recent cases have emphasised that the correct test for determining whether an activity is a business activity is whether there is a direct link between the services or goods supplied and the payment received by the supplier.

The ‘predominant concern’ is irrelevant. This means focusing on whether there is a direct link between the services the recipient receives and the payment made rather than on the wider context of the organisation’s charitable objectives or motive.

Their new approach will be as follows:


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

This requires the existence of a legal relationship between the supplier and the recipient. The first step is to consider whether the supply is made for a consideration.

An activity that does not involve the making of supplies for consideration cannot be business activity for VAT purposes.


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

Where there is a direct or sufficient ‘link’ between the supplies made and the payments given, the activity is regarded as economic.

This new approach takes effect with immediate effect.



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