Commentary

V3.406 The subjective test of purpose

Part V3 Supplies, acquisitions and imports

V3.406 The subjective test of purpose

V3.406 The subjective test of purpose

In principle, tax chargeable, paid or payable is input tax1 only if the goods or services concerned are used or to be used “for the purposes of any business” carried on or to be carried on by the taxable person concerned2. The UK legislation specifies that certain goods and services are3 or are not4 purchased, acquired or imported for a business purpose. In other cases, it is necessary to ascertain the person's intention in making the purchase, acquisition or importation concerned in order to determine whether the goods or services are used or to be used for a business purpose.

Where there is an obvious and clear association between the expenditure incurred and business carried on, express evidence of the trader's intention may not be necessary. Where this is not the case, however, the test to be applied has been set out by Stuart-Smith J in the following terms5:

“The test is were the goods or services which were supplied to the taxpayer used or to be used for the purpose of any business carried on by him? The test is a subjective one: that is to say, the fact-finding tribunal must look into the taxpayer's mind as it was at the relevant time to discover his object. Where the taxpayer is a company, the relevant mind or minds are those of the person or persons who control the company or are entitled to and do act for the company. In a case such as this,

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