Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

VAT Business/Non-Business Manual

HM Revenue & Customs
, see all updates

VAT Business/Non-Business basics: introduction

The purpose of this manual

This manual is written primarily for HMRC staff but it can also assist customers and their professional advisers to determine the correct VAT treatment of input tax incurred on the transactions described. It supplements the basic guidance provided on HMRC’s website, in VAT Public Notices and in Revenue & Customs Briefs.

This manual gives you information and guidance on the meaning of “business” for VAT purposes and how it applies in the operation of the tax.

It is concerned with the subject from the point of view of UK VAT law, but includes reference to EC VAT law. Other UK taxes have their own definitions of business including those administered by our direct tax colleagues. However, these do not necessarily correspond with the VAT definition, which must be given a “European” meaning.

This manual helps HMRC staff make decisions by telling them about:

  • the relevant law and important legal decisions;
  • any case specific facts they may need to establish;
  • how they should apply any appropriate legal test or precedent; and
  • HMRC policy, including any relevant agreements with trade organisations.

A broad understanding of the basic principles of VAT will help you get the best from this manual. Guidance on those basic principles is given in:

The concept of business

The concept of business is central to the operation of the UK VAT system. It helps determine the scope of the tax under Section 4(1) VAT Act 1994 and whether tax can be seen as input tax under Section 24(1) VAT Act 1994. The liability of a taxpayer to account for output tax and its ability to recover tax as input tax depend upon whether its activities are seen as business.

There are four conditions that must be satisfied in order for an activity to be within the scope of UK VAT (VAT Act 1994 Section 4(1)). These are:

  1. it is a supply of goods or services;
  2. the supply takes place in the UK;
  3. it is made by a taxable person;
  4. it is made in the course or furtherance of any business carried on or to be carried on by that person.

This manual is concerned with the fourth of these conditions - the “business” question. It looks at the issue both in terms of its legal basis and its practical application.

The role of Deductions and Financial Services Team

Deductions and Financial Services Team is responsible for policy on business and non-business activities and for this manual. We will sometimes give you a broader picture in this guidance which extends beyond the immediate confines of business and non-business policy. This may relate to areas for which other teams are responsible.

Please see CT & VAT intranet site for help with getting advice from a policy team.