The Court of Appeal decision in Longridge, appeared to have been established beyond serious doubt the difference between business and non-business. At that time, however, the case of Wakefield College, had yet to run its course, but was not looking promising, and was based on somewhat different circumstances. Nevertheless, has giving us yet another view as to what ‘non-business’ really means.
in its argument, HMRC suggested that about 50 other cases, involving approximately £120m of VAT, would be affected by this decision. The Court made some interesting comments, derived from reading the French version of the Finland and Borsele cases, and said whether there is a supply for consideration and whether that supply constitutes an economic activity are two separate questions. A supply ‘for consideration’ is necessary, but is not sufficient in itself for an actvity to be an ‘economic activity’. The first condition requires the payment to be made under a legal relationship with reciprocal performance between the supplier and the recipient, i.e. the ‘direct link’. The economic activity condition means also showing that the supply is made ‘for the purpose of ‘obtaining an income. But ultimately the Court decided that here the “direct link” test was met anyway, because the fees were not means-tested.
Thus it seems likely that the position after Longridge remains, i.e. that the only use that is not to be regarded as ‘business’ is in cases where there is no ‘remuneration’ (for which read payment or ‘consideration’). Unfortunately HMRC may now be likely to argue that, even in very small operations where below-cost payment is received, (such as in the cases of St Pauls and Yarborough nurseries) construction services may not qualify for relief. It also leaves many in much the same place they were at the end of the Longridge litigation, although we shall wait and see whether imaginative use of this new theory gives rise to more favourable future court decisions.