It is well understood in the business world that an entity must have an economic activity to be VAT registered and eligible to recover VAT on related costs. While this basic concept has been in place ever since VAT was introduced, the UK courts and HMRC have been refreshing their view of it lately in light of some more in-depth European case law that has emerged in recent years.
This has been highlighted in an appeal brought by Babylon Farm Ltd, whose directors, Mr and Mrs McLaughlin, also operated a farm as a partnership. Babylon Farm Ltd was set up to undertake certain farming activities alongside their main farming business, and had been VAT registered separately since 1991. Mr McLaughlin also owned several other non-farming businesses which he operated through separate limited companies.
Source RSM
