For approximately 40\nyears, HMRC have relied upon a published set of 6 questions, derived from the\nhistoric Tribunal cases involving Lord Fisher and Morrison\u2019s\nAcademy Boarding Houses Association, to be asked and considered when\ndeciding if an activity undertaken should be considered a business activity\nwithin the context of VAT. The questions were:\n\n\n\nIs the activity a serious undertaking\nearnestly pursued?Is the activity an occupation or\nfunction that is actively pursued with reasonable or recognisable continuity?Does the activity have a certain\nmeasure of substance in terms of the quarterly or annual value of taxable\nsupplied made?Is the activity conducted in a regular\nmanner and on sound and recognised business principles?Is the activity predominantly\nconcerned with the making of taxable supplies for a consideration?Are the taxable supplies that are\nbeing made of a kind which, subject to differences of detail, are commonly made\nby those who seek to profit from them? \n\n\n\n These questions were commonly referred to as \u2018The Business Test\u2019 and were all required to be considered in relation to an activity but as not all would be relevant to all activities, any decision made would be a balanced decision based on the specific circumstances of the supply and would determine whether a supply falls within the scope of VAT and thus whether VAT applies to a supply made, whether the supplier was eligible or required to be registered for VAT and whether the supplier had a right to claim VAT it incurred in making these supplies. \n\n\n\nSubsequent Tribunal cases clarified that a profit motive is not relevant to the question of whether an activity is a business activity and that the above \u2018Business Test\u2019 should be considered to provide only indicators of business but cannot replace the basic principles of what constitutes a business activity.\n\n\n\n However, the more recent Court of Appeal rulings in the cases of Longbridge on the Thames and Wakefield College, has shown that the Courts consider that this matter should be considered more widely than the existing \u2018Business Test\u2019, allowing a more far-reaching interpretation of \u2018business\u2019 and should be considered objectively, taking into account the characteristics of the activity and not the persons intention, their purpose or the end result of the activity.\n\n\n\n The UT dismissed HMRC\u2019s appeal on all Grounds. The FTT applied the correct tests in law and was entitled to reach the conclusion it did on the evidence available to it, irrespective of whether the UT would have come to the same conclusion. \n\n\n\nTherefore, in June\n2022, HMRC issued Revenue and Customs Brief 10 (2022), see the link below. \n\n\n\nhttps:\/\/www.gov.uk\/government\/publications\/revenue-and-customs-brief-10-2022-vat-business-and-non-business-activities\/vat-business-and-non-business-activities\n\n\n\nIn this Brief HMRC\nconfirmed a wholesale change, with immediate effect, to their policy on the\ntest to consider whether an activity is a business activity, replacing the\nprevious 6 question test with a 2-stage test.\n\n\n\nThis new test no\nlonger takes account of the overall objectives of the entity making the supply\nor its intention to make profit but instead requires 2 conditions to be met for\na supply to be considered a business activity:\n\n\n\nThe\nactivity results in a supply of goods or services for consideration; &The\nsupply is made for the purposes of obtaining income therefrom (remuneration).\n\n\n\nThe first condition requires\nthere to be a legal relationship (whether formal or informal) between supplier\nand the recipient in regard to the making of the supply and that the supply is\nto be made with the expectation of the supplier being paid for the supply, whether\nthat payment be in money, in kind or as barter.\n\n\n\nThe second condition requires that there be a direct link between the supply and the payment received, even if the charge and payment for the supply is below the cost of making the supply.\n\n\n\nHMRC has yet to release updated guidance accepting the VAT treatment in line with the Upper Tribunal decision. \n\n\n\nHMRC has also revised\ntheir guidance on the \u2018business test\u2019, providing new guidance as to how to use\nthe new test in their online manual VBNB30200, see the link below.\n\n\n\nhttps:\/\/www.gov.uk\/hmrc-internal-manuals\/vat-business-non-business\/vbnb30200\n\n\n\nOn the face of it, a\nsimple application of this change of policy and the new 2-stage test appears to\nincrease the potential for activities that may previously not have been\nconsidered a \u2018business activity\u2019 to now be considered \u2018business\u2019 and so fall\nwithin the scope of VAT.\n\n\n\nHowever, the fact that the Brief does also confirm that the old \u2018Fisher\/Morrison\u2019s Academy test can continue to be used \u201cas a set of tools designed to help identify those factors which should be considered.\u201d may suggest that. In fact, HMRC do not consider the new 2-stage test to be applied as simply as the Brief may imply. \n\n\n\nWhat is perhaps also concerning is the fact that HMRC also advise that \u201cBusinesses can no longer rely on the old \u2018business test\u2019 to decide whether an activity is business or not\u201d but fall short of stating that that this new test only applies to supplies made from 1 June 2022 onward.\n\n\n\nTheir silence on this could indicate that they may apply the new test retrospectively when reviewing activities that previously may not have been considered a \u201cbusiness\u201d under the old test.\n\n\n\nIf that were to\nhappen it could mean that HMRC may consider that the organisations undertaking\nthose activities must be retrospectively registered for VAT.\n\n\n\nSuch a position would\ncertainly seem unreasonable, but reason is sometimes not relevant in HMRC\u2019s\nactions and so there is no way of knowing if this would be the case\nunless\/until HMRC clarify their position, or if the issue is tested and the\noutcome published.