When is a contractor a business?

There are four conditions which must be met for an activity to be considered to be a business activity.

1. Own expense and risk

An important condition is that business activities are to be carried out at the supplier’s own expense and risk. ‘Own expense’ means that the business or self employed person covers all expenses in association with the work. This includes expenses relating to materials, in association with acquisition, operation and operating equipment. ‘Own risk’ also means that the business or self employed person is responsible for contractual compliance of the assignment, for example the client can make a claim if the result is not satisfactory. A business or self employed person therefore bears the risk of financial loss. If the work is carried out at own expense and risk, then this is often the crucial condition that determines whether an activity is a business activity.

2. Duration and scope

The activity is to have a certain duration and scope. Individual and/or more ad hoc assignments are not necessarily business activities. For example, a person who undertakes to distribute advertising materials to mail boxes for a business is an employee.

3. Financial profit

The activity must be able to generate a financial profit. This condition does not mean that a profit must be generated in the short term if a profit can be expected after a start-up period.

4. Activity

The business must carry out activities. If the activity is so low that it shpuld be regarded as a passive capital investment, it is not a business activity. Examples of passive capital investments are share investments and letting of own homes. A business or self employed person does not need to be active and can have employees who carry out the work.