V2.201B Business—overview

This paragraph provides and overview of 'business' (or, to use the corresponding European term, 'economic activity') for VAT purposes. It cross refers to further detailed commentary on the subject.

Significance of business

Business and business activities are broadly significant for VAT purposes because:


    •     the scope of VAT is limited to business activities


    •     it can be determinative of liability

Significance of business—scope of VAT

VAT is, broadly, levied on supplies of goods and services in the course or furtherance of a business1.

Input tax is, again broadly, VAT charged on the supply to, or acquisition or importation by, a taxable person (in the UK sense), of goods or services used or to be used for the purposes of a business carried on by him2.

A person is liable or entitled to be registered for VAT only if he makes, or intends to make, taxable supplies in the course or furtherance of a business3.

It follows from the above that a supply which is not made in the course or furtherance of a business is not subject to VAT. Similarly, VAT incurred on a purchase, acquisition or importation which is not for business purposes is not recoverable, and non-business activities do not create a liability or entitlement to register. The expression 'business' is therefore fundamental to the operation of VAT.

Significance of business—determination of liability

The use to which a supply is put may also be determinative of its liability. For example, the first grant of a major interest in a building by the

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