VBNB30300 - VAT Business and Non-Business: Principles: Factors to consider in determining whether supplies are for the purpose of generating income
Source: gov.uk (2025-11-07)


As set out in VBNB30200 (https://www.gov.uk/hmrc-internal-manuals/vat-business-non-business/vbnb30200), for an activity to be business it must involve the supply of goods or services for consideration and for the purpose of obtaining income.

In some cases, it may be difficult to decide if an activity is for the purpose of obtaining income or not because of the way the organisation carrying on the activity is structured or how the activities are funded or who the recipient of the service is. If you have determined that the activity involves the making of supplies, there are a number of factors to weigh up when considering whether these supplies are for the purpose of obtaining income. However, they do not form a check list and not all of the factors listed may be present in a transaction or an activity which is or is not a business one. The factors are a set of tools designed to help compare an activity you are uncertain of with those activities that are clearly business.

1. Is a purpose of the consideration to create income?

In most cases, a consideration is charged because the supplier wants to receive the payment. However, in some circumstances, the consideration is charged for other reasons, for example, a notional consideration might be charged simply to create a binding contract, or a small charge might be made to ensure that numbers are controlled (for example The People’s Dispensary for Sick Animals [2012] UKFTT 362 (TC)).

2. Is there an intention to make a profit?

An intention to make a profit is a strong indicator that the activities are intended to generate an income but the reverse is not necessarily true. While there may be other purposes which lead to supplies being made at a loss, one of the purposes may still be to generate income to defray some of the costs of making the supplies.

3. Is the payment so low as to be a concession?

If the consideration is much lower than the value of the supply, that may show that the activity is not for the purpose of obtaining income (see paragraph 21 of EC v France Case C-50/87).

4. Is the activity conducted based on sound business principles?

Whether or not an activity is conducted based on sound business principles is a helpful factor to consider in deciding whether an activity is business or a private activity. This can be examined by considering whether the activity is pursued with recognisable continuity and the level of seriousness, preparations and investment made to promote the activity. For example, a business activity:
- will normally involve book and record keeping plus annual accounting and audit reports;
- is likely to be advertised or publicised to attract customers;
- is less likely to be done for pleasure as would a hobby or pastime;
- is less likely to be an isolated transaction or a one off.
However, while an activity carried out with a high degree of frequency may be indicative of a business, this is less of a factor for high value supplies. For example, where a property developer sells an office block once every 5 years, this will still be business activity. The scope and duration of an activity is only a factor to weigh up rather than one which will determine on its own whether an activity is business or not.

5. What is the scale of the activity?

The scale of the intended turnover is relevant to whether an activity is for the purpose of generating income. An activity that is intended to bring in £10 a week is much less likely to be for the purpose of generating income than one intended to bring in £10,000 a week.

There are also factors which might appear to be relevant to the question of whether an activity is for the purpose of generating an income, but which are not.

A factor which is not relevant to the question of whether supplies are made for the purposes of generating income, is whether the supplies are made by a charity. Charity organisations are subject to the same tax rules as everybody else and there are no special rules for charitable bodies when it comes to business and non-business activities for VAT purposes. While most of their activities are charitable in nature, these activities can at the same time be business activities which are liable to VAT. Although there are tax reliefs for charitable organisations in direct taxes which mean that some activities are not treated as business, these provisions do not extend to VAT.