© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
F4. Non-business use of services
DEEMED SUPPLY
- Supply of services free of charge for private use, or staff, or non-business purposes
"(1) Each of the following transactions shall be treated as a supply of services for consideration:
[...]
(b)the supply of services carried out free of charge by a taxable person for his private use or for that of his staff or, more generally, for purposes other than those of his business.
(2) Member States may derogate from paragraph 1, provided that such derogation does not lead to distortion of competition." (PVD Article 26)
EU law
- Person puts input services to use for private purpose, makes available to another for non-business purpose
"Subject to articles 6 and 7 below, where a person carrying on a business puts services which have been supplied to him to any private use or uses them, or makes them available to any person for use, for a purpose other than a purpose of the business he shall be treated for the purposes of the Act as supplying those services in the course or furtherance of the business." (SI 1993/1507, Article 3)
Domestic law
- Exclusion where input recovery was restricted
"This Order shall not apply in respect of any services—
(a)which are used, or made available for use, for a consideration;
(b)except those in respect of which the person carrying on the business was entitled under sections 14 and 15 of the Act(2) to credit for the whole or any part of the tax on their supply to him;
(c)in respect of which any part of the tax on their supply to the person carrying on the business was not counted as being input tax of his by virtue of an apportionment made under section 14(4) of the Act;..." (SI 1993/1507, Article 3)
- Exclusion where use was for consideration
"This Order shall not apply in respect of any services—
(a)which are used, or made available for use, for a consideration;..." (SI 1993/1507, Article 3)
- Limit to amount of input originally recovered
"Nothing in this Order shall be construed as making any person liable for any tax which, taken together with any tax for which he was liable as a result of a previous supply of the same services which he was treated as making by virtue of this Order, would exceed the amount of input tax for which he was entitled to credit under sections 14 and 15 of the Act in respect of the services used, or made available for use, by him; and, where the tax chargeable would otherwise exceed the amount of that credit—
(a)he shall not be treated as making a supply of the services where the amount of that credit has already been equalled or exceeded; and
(b)in any other case, the value of the supply shall be reduced accordingly." (SI 1993/1507, Article 3)
FREE OF CHARGE
- Private purpose includes personal use
"In the case of a business carried on by an individual, this Order shall apply to services used, or made available for use, by himself personally." (SI 1993/1507, Article 4)
PRIVATE USE
STAFF USE
NON-BUSINESS USE
- Purchase of vouchers to provide free of charge to customers to promote business not non-business use
"[74] If, however, as the Upper Tribunal found, the economic link for input tax purposes is between the purchase of the vouchers and the general business so as to engage Article 168 PVD, the free supply of the vouchers to ANL's customers remains an activity outside the VAT regime with two possible consequences. The first is that it should be ignored for all purposes including those of Article 26 so that there is no supply of services which exists to attract a charge to output tax. The other is to recognise the provision of the vouchers as a free supply of services but to apply Article 26 in a way that is consistent with the premise that the vouchers were acquired as part of the general costs of the business. In these circumstances, Article 26 (and therefore Article 3 of the 1993 Order) could operate to impose a charge to output tax if the vouchers were used (e.g.) to make gifts to employees. But they would not impose a tax charge if the vouchers were supplied to customers in accordance with the promotional scheme. In that case the only realistic finding would be that they were being used to fulfil the commercial purpose for which they were acquired." (Associated Newspapers Limited v. HMRC [2017] EWCA Civ 54, Patten LJ)