Purpose of a business activity must be to generate an income

The taxpayer which was registered for VAT claimed input tax of £19 765 in the three years up to 2017 with no output tax declared in this period. The taxpayer’s only income apart from an exempt property sale was about £440 each year for selling hay to a connected business. Hay sales are zero rated.

HMRC disallowed all input tax on the basis that the taxpayer was not carrying on a business. But it allowed it to be registered for VAT until the dispute was resolved.

The land on which the hay was grown belonged to the directors a husband and wife who controlled the taxpayer. The hay making activity generated annual income of less than £500 the only customer being one of the directors. The hay making activity was the remains of a farming business it had previously carried on.

The taxpayer argued it was...