What is a business for VAT purposes?

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This is a very interesting tax case on what constitutes a business for VAT purposes say Harris & Co accountants Northampton #accountantsnorthampton

Case Report: Spencer-Churchill [2014] TC 03763

[2014] UKFTT 635 (TC)

Judge Howard M Nowlan, Gill Hunter

Decision released 26 June 2014

Value added tax — whether a ‘one-off’ service, for which the consideration received was arguably gratuitous, was undertaken ‘in the course of a business’ — Appeal dismissed.

  The First-tier Tribunal (FTT) dismissed the appeal against HMRC’s decision that, when Spencer-Churchill assisted the owner of a valuable house to sell it, he had supplied a service ‘in the course of a business’ and thus output tax was chargeable on his six-figure fee.


  The Appellant knew that his friend Mr Lyons wished to sell a house. The Appellant sometimes made introductions between the rich, but he never performed that role in an organised manner. Apparently, it was known in high-end property circles that Mr Goncharenko, a wealthy Russian (‘the Russian’) wished to buy a substantial house in London. Thus, the Appellant introduced Mr. Lyons to the Russian. Contracts for the sale were exchanged so swiftly that no agent was formally appointed by Mr Lyons.

  The Appellant confirmed that he had been heavily involved, almost as the ‘go-between’ between Mr Lyons and the warring parties when the two firms of agents, Aylesfords and Knight Frank, competed for fees or shares of fees from Mr Lyons.

  The FTT accepted, in the Appellant’s favour, that almost certainly there was no written contract between Mr Lyons and the Appellant conferring the Appellant’s entitlement to a fee in connection with a sale of the property to which the Appellant had contributed. The FTT even stopped short of concluding that there was some fairly informal undertaking between Mr Lyons and the Appellant, which would have put the figure of two per cent of the sale price as the intended consideration payable for any envisaged role (para. 37 of the decision).

  The FTT considered the following three matters:

(1)whether the Appellant made a supply of a service, consisting of assisting the owner of a house to sell it;

(2)whether the supply was made for a consideration; and

(3)whether the supply was made ‘in the course of a business’ that was conducted by the Appellant.

  The FTT held (at para. 39 of the decision) that the first two were satisfied, as there had been a handshake deal between Mr Lyons and the Appellant. It was implicit in that deal that the Appellant would perform in his personal capacity some introductory role as regards the property sale, and if the Appellant’s role produced a sale, then the Appellant would be due a fee. The FTT was not concerned with technical legal questions as to whether there was sufficient certainty to the terms of the handshake deal to establish that there was an enforceable contract.

  When a VAT liability depends on a service being provided ‘in the course of a business conducted’ by the service provider, there is a suggestion that, for the test to be satisfied, there must be some wider business, ‘in the course of which’ the supply is rendered. In other words, making one isolated ‘business-like’ supply may not be sufficient to create a VAT liability. If so, the FTT would find that, while several of the Appellant’s roles appear to have been those of ‘making introductions’, the Appellant had no wider business structure of being a ‘property intermediary’, who exploited his connections in order to sell houses. However, a liability to VAT requires the service to be one that constitutes an activity in some wider business. The FTT gave a broad meaning to the notion that the service must be rendered in the course of a business. The absence of any business organisation may detract from the conclusion that the supplies are ‘business-like’, but the FTT rejected any suggestion that a ‘one-off business-like supply’ cannot be a supply ‘in the course of a business’ based on an implicit requirement that a business must always be somewhat broader than one transaction (para. 44 of the decision).

  The FTT held that there was no compelling relevance to the fact that the Appellant appeared to have accepted that income tax was due on his fee. However, the only basis for there being a liability for income tax must be that the activity was accepted to be a trading activity or activity in the nature of trade, or the supply of a service for a consideration. For income tax purposes, a ‘one-off’ transaction can constitute a trading transaction. The famous case of the isolated sale of a vast amount of toilet paper, and the conclusion that that transaction occasioned a trading profit, might have involved more organisation and financing than the role performed by the Appellant in this case, but these income tax assumptions (as to what is done in the course of a trade) have a marginal bearing on the point at issue (para. 45 of the decision).

  In dismissing the appeal, the FTT held that the Appellant’s activity was not some activity in the course of ‘social engagements’ or pleasure. The Appellant’s role was one where he expected from the start to earn a fee for providing a service, a role that was commercial. Thus, the Appellant acted ‘in the course of a business’ (para. 51 of the decision).


  The facts were unusual and good documentary evidence was lacking. The FTT found the liability to VAT ‘was quite a balanced issue,’. The FTT considered the content of certain e-mails that had probably been written hastily and possibly on hand-held devices. No doubt the Appellant never realised that the e-mails would affect his VAT liability. The VAT chargeable on the fee should be deducted in calculating the income that is liable to income tax, which at least cuts the Appellant’s liability to that tax.

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