The VAT concept of business
The VAT system is policed by HMRC and there can be heavy penalties for breaches of the legislation. There are four conditions that must be satisfied in order for an activity to be within the scope of UK VAT. These conditions are that the activity: is a supply of goods or services that the supply takes place in the UK is made by a taxable person is made in the course or furtherance of any business carried on or to be carried on by that person The fourth point above is a condition that needs to be considered when deciding whether an activity is within the scope of VAT. This concept of business is one of the less well-known rules. However, it is an important condition that decides if a business must charge VAT on their sales, known as output VAT and on its ability to recover VAT, known as input tax. The VAT concept of business is taken to be the same as the concept of 'economic activity' set out in European legislation. Therefore, if an activity falls within EU definition of economic activity it must be business in the UK. Both of these definitions are wide and, in some cases, have needed to be interpreted by the courts.