When liability to VAT is dependent on a service being provided “in the course of a business conducted” by the service provider, Tribunals and Courts are required to give a very broad meaning to the notion that the service must be rendered in the course of a business.
The cases suggest seven features to be considered in assessing whether supplies were made in the course of business:
1. whether there was a serious undertaking earnestly pursued;
2. whether there was a serious occupation, not necessarily confined to commercial or profit-making undertakings;
3. whether the activity was an occupation or function actively pursued with reasonable or recognisable continuity;
4. whether the activity had a degree of substance as measured by the quarterly or annual value of taxable supplies made;
5. whether the activity was conducted in a regular manner and on sound and recognised business principles;
6. whether the activity was mainly concerned with the making of taxable supplies to consumers for a return; and
7. whether the taxable supplies were of a kind which, subject to differences of detail, are commonly made by those who seek to profit by them.
The First-tier Tribunal (Tax) case of Spencer -Churchill v Revenue & Customs  concerned mainly whether a supply of a service by the Appellant, consisting of assisting the vendor of very valuable London house sell it, was a service made “in the course of a business” run by the Appellant.
Before the house was formally offered for sale, the Appellant knew that the owner, Mr. Lyons, wished to sell the house, and the Appellant had dinner at Scott’s of Mayfair with both Mr. Lyons and a man, the Appellant had recently been introduced to, called Jean Luc (“Jean Luc”). A wealthy Russian, Mr. Andre Goncharenko (“Mr. Goncharenko”) was looking to purchase a very substantial house in London, and Jean Luc knew Mr. Goncharenko. Mr. Goncharenko was dining at the same restaurant. Mr. Lyons and Jean Luc spoke to Mr. Goncharenko and indicated that Lyndhurst Road was available to purchase. Mr. Goncharenko had apparently seen the house and offered to purchase it for £43 million.
Various agents became involved and even though some of the others hadn’t produced the sale the Appellant arranged the division of the agreed fee so that Aylesfords, Knight Frank, Jean Luc and the Appellant were all to receive £125,000 each.
A question later arose whether the appellant should have accounted to HMRC for VAT on his receipt.
The Tribunal found that there had clearly been some deal between Mr. Lyons and the Appellant, dating right back to November 2009 at least, in which it was implicit that the Appellant would perform some introductory role in relation to the sale of the property, and that if the Appellant’s role did result in a sale, then the Appellant would be entitled to a substantial cash payment.
Technical legal questions as to whether there was sufficient certainty as to the terms of the handshake deal to establish an enforceable contract at law did not matter. Clearly for VAT purposes the Appellant rendered a service to Mr. Lyons, for which he was to be remunerated whether or not that service was intended to be remunerated from the outset.
Going back to the tests at paragraphs 1-7 above, some were satisfied and others (mainly continuity) were not. The main distinguishing factor in this case was that the activity did appear to have been pursued quite deliberately from at least November 2009 in a commercial and “business-like” manner. Significant also was the early indication by Mr. Lyons that the Appellant should receive a fee for his services, and e-mails seen which suggested that the Appellant and one of the agents were competing jointly to preserve their fee expectations.
It was not only the other Agents who were competing for the entitlement to receive fees, leaving the Appellant to receive a gratuity. The Appellant was involved in the fee battle involving the others.
The wide meaning to be given to the notion of “business” meant that there should be a liability to VAT where any supplies are made in “an economic activity”. So the tests at 1-7 above could be satisfied even if the business encompassed only the one activity, if the activity had been conducted in an entirely business-like manner.
All the other parties were plainly acting in the course of business, and all would have been accounting for VAT. That made it odd to suppose that the Appellant alone was not conducting an economic activity. It could not be said that the Appellant’s activity had been merely in the course of “social engagements” or pleasure.
This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.