HMRC has replaced its six-step test about business activity for VAT to determine if an activity is “business” or “non-business”. https://www.gov.uk/government/publications/revenue-and-customs-brief-10-2022-vat-business-and-non-business-activities/vat-business-and-non-business-activities
A business activity is for business if:
-it results in a supply of goods or services for consideration (payment of money or money’s worth); and
-It’s made for the purpose of obtaining income (remuneration).
Who does it affect?
It’s no longer enough for a supply to be made for consideration for it to count as business (economic) activity. The activity must result in income (remuneration) for the provider. The change could have significant consequences affecting the right or requirement to register for VAT and also when to charge and reclaim VAT.
The change will affect charities, businesses that receive grant income or subsidies, those that provide crêche facilities for workers’ children, non-profit organisations and any business that also has non-business activities.
HMRC’s new definition of business activity means that charities, non-profit organisations and some businesses should review if they can or need to remain registered for VAT. They should only reclaim VAT relating to supplies which are business active activities as now defined.
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