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HMRC internal manual

VAT Business/Non-Business Manual

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VAT Business and Non-Business activities: deemed business activities

Background

Section 94 of the VAT Act 1994 requires that certain activities are always to be treated as “business”. The law is set out at VBNB14000. The activities are often referred to as “deemed businesses”.

If the activity with which you are concerned is not covered by Section 94 you will need to apply the business test, which is covered in VBNB22000.

The following are those activities which are “deemed businesses” under the provisions of Section 94 of the VAT Act 1994:

Membership subscriptions

It is normally a business activity under section 94(2)(a) of the VAT Act 1994 when a club, association or other organisation provides facilities and the advantages of membership for a subscription or other consideration. See VBNB60000.

Admission to premises

Allowing people entry to any premises for a consideration is a deemed business under Section 94(2)(b) of the Act. This point was looked at in Eric Taylor Testimonial Match Committee (VBNB72400).

The decision in this case shows how the rules on deemed business activities take effect even where other indicators would point against the activity being regarded as a business.

Office holders

Guidance on whether office holders are acting by way of business in the performance of their duties is covered in VBNB41000.

Termination or intended termination of a business

Anything done in connection with the termination or intended termination of a business is regarded as being done in the course or furtherance of that business under section 94(5) of the Act. Otherwise there would be a distortion of competition for people remaining in business who make similar supplies.

Disposal of a business as a going concern

The transfer of the assets of a business from one legal person to another with no significant break in the activity is a business activity under Section 94(6) of the Act. The transfer can be to a person with no previous interest in the business, or it can be a simple change of legal entity. Examples include when a sole proprietor:

  • forms a limited company; or
  • takes someone into partnership.

There is, however, no transfer of a business as a going concern when ownership changes through:

  • the sale of the shares in a company; or
  • a change in business partners.

The VAT liability of these sales is explained in VAT Notice 700/9 Transfer of a business as a going concern.

Disposal of the assets or liabilities of a business

The disposal of the assets or liabilities of a business for a consideration is a business activity under Section 94(6) of the Act. However, the disposal of goods which:

  • are held as business assets; and
  • whether for consideration or not

is also regarded as being made in the course or furtherance of a business under paragraph 5(1) of Schedule 4 of the VAT Act 1994.

The application of business assets to non-business use

Although not specifically covered in Section 94 the use of goods for a non-business purpose:

  • whether or not for a consideration; and
  • which stay part of the assets of a business

is treated as a supply of services under paragraph 5(4) of Schedule 4, VAT Act 1994.

Further guidance on the VAT treatment of business assets is contained in VATSC Supply and consideration VATSC04600 and in VIT VAT Input Tax VIT25000.