What is a business?

For tax purposes, it can be important to ascertain whether or not a person is carrying on a ‘business’. For IHT purposes, business property relief may be available at the rate of 100% for a ‘business or an interest in a business’ provided of course that the business does not consist ‘wholly or mainly of making or holding investments’. In the realm of VAT, the tax base is itself defined by the making of taxable supplies ‘in the course of a business’. The making of such supplies over the registration threshold does of course trigger an obligation to register for VAT and charge output tax on sales, but it will also enable the VAT suffered by the business to be reclaimed as input tax. This can be particularly helpful in the early years of, or even the period prior to the establishment of the business. Input tax reclaimed may provide a valuable aid to cash flow. The prerequisite to reclaiming input tax has to be whether what the taxpayer intends to do is, or will amount to, the carrying on of a business. This is what the Tribunal had to decide in Goodman Equine Ltd v HMRC [2012] UKFTT 565 (TC).