There are a number of conditions that must be satisfied in order for an activity to be within the scope of UK VAT. One of the conditions that needs to be carefully considered when deciding whether an activity is within the scope of VAT is the concept that the supply must be made in the course or furtherance of business.
This idea of 'business' is one of the less well-known rules. However, this is an important condition that drives the liability of a business to charge VAT on their sales, known as output VAT and on its ability to recover VAT, known as input tax.
In most cases, it will be clear whether an activity is ‘business’ related and should fall within the scope of VAT. However, in cases where the result is less clear cut, HMRC can use a business test to help. The test is based on a historic court case where the court identified six factors or indicators to determine whether an activity was ‘business’ related. The test should be applied to individual activities separately.
HMRC’s internal manuals provide the following example:
Imagine a person registered as a self-employed plumber who now and again renovates old cars. They do not automatically have to charge tax when selling those cars. This is because it would be hard to see the activity of car renovation being included within their business as a plumber.
On the other hand, if the car activity can be seen to have the attributes of a business in its own right then the plumber would have to charge tax on the sales.