VAT—when is a person in business?
Produced in partnership with Michael Ridsdale of Wedlake Bell LLP
VAT—when is a person in business?

The following Tax guidance note Produced in partnership with Michael Ridsdale of Wedlake Bell LLP provides comprehensive and up to date legal information covering:

  • VAT—when is a person in business?
  • Meaning of business—the legislative tests
  • Meaning of business—case law
  • What activities are non-business activities?

The term ‘business’ is a concept which underpins the operation of VAT because:

  1. a person is only liable or entitled to register for VAT (ie is a taxable person) if it makes taxable supplies in the course or furtherance of a business

  2. VAT can only be charged by a person where that person is in business and is registered for VAT and whether a person is liable to register for VAT depends on whether he is a taxable person and therefore in business, and

  3. a person is only entitled to recover VAT where it has incurred such VAT for the purposes of its taxable business

It is therefore very important to establish whether or not a person is in business for VAT purposes. Although in many cases it is obvious when a person is in business, this is not always the case.

Meaning of business—the legislative tests

European legislation

The European directive on the common system of value added tax (the VAT Directive), which is the source of the UK VAT legislation (as further explained in Practice Note: EU and VAT), does not use the term business and, instead, refers to the term ‘economic activity’, ie a person must be carrying out an economic activity in order to be a taxable person and therefore within the scope of VAT.

There is no