What is a business for VAT purposes?
My client is registered for VAT despite being well below the threshold. He sells to the general public and my advice would normally be to deregister so that he doesn't have to pay VAT on his sales.
However, his business has been so poor over a period of years that he always gets a VAT refund. He appears to sell nearly everything at a gross loss.
He's always trying something new but it never seams to work!
My concern is that HMRC would not regard this as a business but I cannot see anything in the guidance that suggests poor business acumen is a criterea that would use to deregister a client (or prevent them registering).
I extracted this from the Guidance -
"What is business for VAT purposes?
You can only register for VAT if you're in business. HMRC defines a business as a continuing activity involving getting paid for providing goods or services - in money or another form of payment such as in-kind or barter.
You are in business when, for example:
- you earn an income by carrying on a trade, vocation or profession - by being self-employed or through another entity such as a limited company
- you provide membership benefits as a club, association or similar body in return for a subscription or other form of payment
- you provide certain other activities as a club or other recreational body, charity or other non-profit making body
- you charge admission to a premises
To be in business, these activities must have a degree of frequency and scale and be continued over a period of time.
Even if your activities have some or all the characteristics of a business, they may not be considered a business for VAT purposes if they are essentially a recreation or hobby, or an isolated transaction. So if you only make occasional VAT taxable supplies, or your supplies are minimal, it may be that you don't need to register for VAT. The one-off or infrequent sale of your personal belongings at a car boot sale or auction, for example, would fall into this category - but buying goods for resale on a regular basis is definitely a business activity."