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HMRC internal manual

VAT Business/Non-Business Manual

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VAT Business/Non-Business basics: European law

The Principal VAT Directive determines the scope of VAT in Article 2(1). This makes supplies liable to tax.

Article 2, Directive 2006/112:

2(1) The following transactions shall be subject to VAT:

(a) the supply of goods for consideration within the territory of a Member State by a taxable person acting as such;

(b) the intra-Community acquisition of goods for consideration within the territory of a Member State by:

(i) a taxable person acting as such, or a non-taxable legal person, where the vendor is a taxable person acting as such who is not eligible for the exemption for small enterprises provided for in Articles 282 to 292 and who is not covered by Articles 33 or 36;

(ii) in the case of new means of transport, a taxable person, or a non-taxable legal person, whose other acquisitions are not subject to VAT pursuant to Article 3(1), or any other non-taxable person;

(iii) in the case of products subject to excise duty, where the excise duty on the intra-Community acquisition is chargeable, pursuant to Directive 92/12/EEC, within the territory of the Member State, a taxable person, or a non-taxable legal person, whose other acquisitions are not subject to VAT pursuant to Article 3(1);

(c) the supply of services for consideration within the territory of a Member State by a taxable person acting as such;

(d) the importation of goods.

A taxable person is defined in Article 9(1) of the Principal VAT Directive.

Article 9, Directive 2006/112:

9(1) “Taxable person” shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.

Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as “economic activity”. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.

These definitions are deliberately designed to be wide and all embracing. They have tended to be interpreted as such by the Courts.

Although “business” is, at first sight, different from “economic activity”, UK law must be interpreted so it agrees with the Directive. As a result “business” and “economic activity” must be seen to mean the same thing. If an activity falls within the Principal VAT Directive definition of economic activity it must be business in the UK.

See VIT VAT Input Tax VIT25900 for more about whether an activity is a core activity normally undertaken by the organisation. That page also discusses the impact of the Vereniging Noordelijke Land-en Tuinbouw Organisatie (VNLTO) case (see VBNB72050).