VBNB22120 – VAT Commercial and non-commercial basics: non-commercial activities which result in payment – HMRC internal manual

Some activities carried out by organizations could be revenue-generating or for the purpose of raising capital, but are not commercial for various reasons. Examples of such activities are listed below:

Income generating activity

Admission of new partners in an existing partnership: When a new partner is admitted in a partnership by means of a capital contribution in cash, it is not a supply because there is no service returned by the partnership to the new partner.

Investment portfolio: Buying and holding stocks and bonds is not a business activity because it is not like operating a property. Any dividend is the result of ownership rather than operation. However, ownership of stocks and bonds can go beyond simply holding them and involve selling them. This is not a delivery for VAT purposes and is only a commercial activity in which transactions are carried out as:

  1. in the context of a commercial activity of shareholding;
  2. the activity is a direct, permanent and necessary extension of a commercial activity, for example the investment activity of an insurer underlying the insurance.

For more information on capital raising activities, acquisition and holding of shares and new issue of shares, see VIT40600

Hobbies: People sometimes have hobbies that involve making supplies for pay, such as selling duplicates of a collection like stamps. These supplies are not automatically made in the course of or in the course of a commercial activity, in particular when sales are occasional. You must consider the factors in VBNB30200 to decide whether or not the activities constitute a business.

Hobbies that involve a registrant making minimal supplies are unlikely to be business. However, in some cases, the person’s hobby may involve making substantial supplies and may become a commercial activity. Many successful businesses are born out of a hobby or a private interest.

Disposal of private assets: The disposal of private assets is a non-commercial activity. If, however, the goods are being sold through a business, you will need to consider the circumstances carefully before deciding whether the sale can properly be considered separate from the business.

When determining whether a sale is indeed private, you should carefully consider the nature of the transaction, in particular:

  • Are the goods sold of a type normally sold through the company?
  • did the sale depend on the company’s contacts and reputation? and
  • how were receipts processed and accounted for?