Alan and Diane McFarland (A Partnership) v The Commissioners for HMRC

The supply of “any interest in or right over land or of any licence to occupy land” is an exempt supply: Item 1 of Group 1 of Schedule 9 to Value Added Tax Act 1994 (“VATA 1994”); s. 31 VATA 1994. This implements Article 135 of Directive 2006/112/EC, the Principal VAT Directive.

The CJEU has established that this exemption has an autonomous meaning in EU law and the “fundamental characteristic” is “conferring on the person concerned, for an agreed period and for payment, the right to occupy property as if that person were the owner and to exclude any other person from enjoyment of such a right”: Sinclair Collis Limited v CEC (Case C-275/01); [2003] STC 898 (“Sinclair Collis”) at [25]; see also Stichting ‘Goed Wonen’ v Staatssecretaris van Financien (Case C-326/99) [2003] STC 1137 at [55]. It is “usually a relatively passive activity”: Belgian State v Temco Europe SA (Case C-284/03) [2005] STC 1451 at [20].

The supply of “animal feeding stuffs” is zero-rated: Item 2 of Group 1 of Schedule 8 to VATA 1994; s. 30 VATA 1994.

In HMRC v The Honourable Society of Middle Temple (“Middle Temple”) [2013] UKUT 250 (TCC); [2013] STC 1998 at [28] Judges Sinfield and Gort summarised the law as follows:

“(1)

where one or more supplies constitute a principal supply and the other supply or supplies constitute one or more ancillary supplies which do not constitute for customers an end in themselves but a means of better enjoying the principal service supplied (see Card Protection Plan Ltd v Customs and Excise Comrs (Case C-349/96) [1999] STC 270, [1999] ECR I-973 (“CPP”) at para 30); and

(2)

where two or more elements or acts supplied by the taxable person are so closely linked that they form, objectively, a single, indivisible economic supply, which it would be artificial to split (see Levob Verzekeringen BV v Staatssecretaris van Financiën (Case C-41/04) [2006] STC 766, [2005] ECR I-9433 (“Levob”) at para 22).”

In Middle Temple at [60] Judges Sinfield and Gort set out 12 points key to determining whether a particular transaction should be regarded as a single composite supply or as several independent supplies. These were:

“(1)

Every supply must normally be regarded as distinct and independent, although a supply which comprises a single transaction from an economic point of view should not be artificially split.

(2)

The essential features or characteristic elements of the transaction must be examined in order to determine whether, from the point of view of a typical consumer, the supplies constitute several distinct principal supplies or a single economic supply.

(3)

There is no absolute rule and all the circumstances must be considered in every transaction.

(4)

Formally distinct services, which could be supplied separately, must be considered to be a single transaction if they are not independent.

(5)

There is a single supply where two or more elements are so closely linked that they form a single, indivisible economic supply which it would be artificial to split.

(6)

In order for different elements to form a single economic supply which it would be artificial to split, they must, from the point of view of a typical consumer, be equally inseparable and indispensable.

(7)

The fact that, in other circumstances, the different elements can be or are supplied separately by a third party is irrelevant.

(8)

There is also a single supply where one or more elements are to be regarded as constituting the principal services, while one or more elements are to be regarded as ancillary services which share the tax treatment of the principal element.

(9)

A service must be regarded as ancillary if it does not constitute for the customer an aim in itself but is a means of better enjoying the principal service supplied.

(10)

The ability of the customer to choose whether or not to be supplied with an element is an important factor in determining whether there is a single supply or several independent supplies, although it is not decisive, and there must be a genuine freedom to choose which reflects the economic reality of the arrangements between the parties.

(11)

Separate invoicing and pricing, if it reflects the interests of the parties, support the view that the elements are independent supplies, without being decisive.

(12)

A single supply consisting of several elements is not automatically similar to the supply of those elements separately and so different tax treatment does not necessarily offend the principle of fiscal neutrality.”

The parties identified a number of potentially relevant cases in the agricultural context.

Customs and Excise Commissioners v Scott [1978] STC 191(“Scott”) concerned a farmer, who contracted with clients who owned mares, to send him those mares for the purpose of service by the farmer’s stallions. Cumming-Bruce LJ noted that the contract imposed the following obligations on the farmer:

“(1)

to provide the appropriate number of services by the stallion and tests to achieve a pregnancy; (2) to accommodate the mare for the required number of weeks; (3) to feed the mare during this period; (4) to look at the mare each day; (5) to call in the owner or a veterinary surgeon if any trouble is observed, and in an emergency to take first aid measures; (6) to observe what they describe as the substantial duties imposed by common law on a bailee for reward.”

The VAT Commissioners had looked at each of the components separately. The Divisional Court held this to be in error. Cumming-Bruce LJ commented “I find it artificial to describe what the taxpayer was supplying as being the supply of a number of different things as compared to the supply of one service for a week, namely the service of keeping the mare.” Agreeing with Cumming-Bruce LJ, Lord Widgery CJ remarked:

“I think it would be a great pity if we allowed this subject to become over-legalistic and overdressed with legal authorities when, to my mind, once one has got the question posed, the answer should be supplied by a little common sense and concern for what is done in real life and not what is, as Cumming-Bruce LJ put it, too artificial to be recognised in any context.”

There are also a number of potentially relevant first-instance cases.

In Suzanne and Julian Marczak Trading as Suzanne’s Riding School v Customs and Excise Comrs LON/94/1682A (VTD 13141) the Tribunal considered whether summer grazing supplied by a riding school constituted a zero‑rated supply of grazing or a standard‑rated supply of services. The evidence showed that the taxpayers provided only grass keep to the owners of horses turned out for the summer. Although ancillary matters occurred – such as farriery taking place on the premises, occasional emergency calls to a veterinary surgeon, and rare sales of medicines – these arose from convenience or legal duties of animal welfare, not from any contractual obligation owed to the owners. The Tribunal found that owners expected no services beyond the provision of grazing, that the additional activities were neither regular nor required by contract, and that many invoices contained no elements other than the charge for grass.

In Fidler (RW & JR) (t/a Holt Manor Farm Partners) v Customs and Excise Comrs LON/94/798A (VTD 12892) the Tribunal considered whether supplies described as grass livery were properly zero‑rated as the supply of grazing, or whether additional activities carried out by the taxpayer rendered the entire supply standard‑rated as the “keep” of animals. The taxpayers operated a horse‑breeding and livery business. Some horses were kept at full livery, but the appeal concerned horses turned out to grass, which the taxpayers treated as zero‑rated. The horses were checked twice daily; they were wormed monthly; they were shod approximately every six weeks by a farrier who also attended the taxpayers’ own horses; and there were occasional veterinary visits. VAT was charged on the worming, farriery and veterinary services, but the taxpayers argued these were minimal and incidental to the essential character of the grass supply. Applying a common‑sense view of the transaction as a whole, the Tribunal concluded that the taxpayers did not undertake responsibility for the overall care of the horses, nor did they supply a service of keeping the horses. Rather, the additional activities were incidental or carried out on behalf of the owners as their agents (and so not part of the supply). Accordingly, the appeal was allowed, as the Tribunal held that the taxpayers supplied only grass keep and were entitled to zero‑rate these supplies.

In John Window v Customs and Excise Comrs LON/00/0011(VTD 17186) (“Window”) the Tribunal considered whether the taxpayer’s supplies at a riding stables comprised separate exempt supplies of stable rent and standard‑rated supplies of livery services, or a single composite supply. A fixed weekly rent was charged for stabling, which the Tribunal accepted was an exempt licence to occupy land. Livery services – such as feeding, mucking out and turning out – were optional, varied between owners, and were charged separately. Owners could stable their horses without taking livery, but livery could not be provided without stabling. The Tribunal found that the principal reason for the combined payments made by ‘livery’ owners was to secure the use of a specified stable for their horses. The principal supply was the exempt grant of the stable, and that the livery services purchased by some owners were ancillary to that exempt supply. The Tribunal therefore held that, for those owners, there was a single exempt supply and allowed the appeal.

In Own v HMRC [2015] UKFTT 277 (TC); [2015] SFTD 751 (“Own”) the Tribunal considered whether payments received for allowing third‑party farmers to keep cattle in sheds on the Partnership’s land were consideration for a standard‑rated supply of animal husbandry, or an exempt supply of a licence to occupy land with only ancillary services. The Tribunal, accepted much of the Partnership’s evidence. It found that although the Partnership provided feed and water and would meet minimal legal obligations (such as contacting a vet in an emergency or undertaking occasional cleaning), responsibility for animal care lay with the owners. There was no evidence of the Partnership providing comprehensive animal husbandry or exercising the “skilled eye” envisaged in Scott. The description “bed and breakfast” was treated as contrasting with “full board”. The Tribunal held that, as in Window, the essence of the transaction was the grant of an exclusive right to use a shed for housing cattle, and any additional actions by the Partnership were incidental or required only to comply with basic legal obligations under the general law. The supply was therefore a single exempt supply of a licence to occupy land. The appeal was allowed to that extent.

Whilst all these cases offer some guidance, the task for this Tribunal is to determine this case on the facts before it, applying the tests in CCP/Levob, not to reason by analogy to other cases.

In KSM Henryk Zeman SP Z.o.o. v HMRC (“Zeman”) [2021] UKUT 182 (TCC); [2021] STC 1706, Adam Johnson J and Judge Hellier stated that on an appeal against a VAT assessment under s.73 VATA 1994 this Tribunal has jurisdiction to consider legitimate expectation. HMRC dispute this, essentially for the reasons argued by HMRC in Queenscourt Ltd v HMRC [2024] UKFTT 460 (TC); [2024] SFTD 1083 (“Queenscourt”)

HMRC say that the part of the decision in Zeman relating to jurisdiction is obiter. HMRC note that there is conflicting authority on whether it is obiter dicta. The FTT in Queenscourt at [141]-[142] held that the observations in Zeman were strictly obiter. The FTT in Treasures of Brazil Limited v HMRC [2024] UKFTT 929 (TC) (“Treasures of Brazil”) held that the remarks were ratio [40]-[44]. The FTT in WM Morrison Supermarkets Limited v HMRC [2025] UKFTT 1542 (TC) concluded that they were not binding ([362]-[366]) but nonetheless considered should be followed ([378]-[384]).

Assuming the Tribunal has jurisdiction, the conditions that would give rise to a claim for legitimate expectation were summarised by Nugee J. in Veolia ES Landfill Ltd & Anor v HMRC [2016] EWHC 1880 (Admin) at [103]:

“(1)

HMRC may create a legitimate expectation that a person’s tax affairs will be treated in a particular way either by the promulgation of general guidance to a body of taxpayers or by a specific statement or ruling given to a taxpayer.

(2)

A legitimate expectation will only arise if the guidance or the specific statement is clear, unambiguous and devoid of any relevant qualification.

(3)

If a taxpayer approaches HMRC for a ruling, he has an obligation to place all his cards face up on the table, in the sense of giving full details of the transaction on which he seeks the revenue’s decision.

(4)

Provided there was a clear and unambiguous statement and provided the taxpayer has placed all his cards face up on the table, he will generally be entitled to rely on an assurance given to him as binding on HMRC. A similar entitlement arises in relation to guidance issued by HMRC.”

These principles can be traced to R (Davies) v HMRC, R (Gaines-Cooper) v HMRC [2011] UKSC 47; [2011] STC 2249 and R v IRC ex p MFK Underwriting Agents Ltd [1990] 1 WLR 1545; [1990] STC 873 (“MFK”).

The applicable principles are contained in the Supreme Court’s decision in Tinkler v HMRC [2021] UKSC 39; [2021] STC 1546. This was summarised in Queenscourt at [222]:

“(1)

There must be an expressly shared common assumption between the parties.

(2)

The sharing of the common assumption must include words or conduct from which the necessary sharing or assent to the assumption can properly be inferred.

(3)

The expression of the common assumption by the party alleged to be estopped (in this case HMRC) must be such that they may properly be said to have assumed some element of responsibility for it, in the sense of conveying to the other party an understanding that they expect the other party to rely on it.

(4)

The person alleging the estoppel must in fact have relied upon the common assumption, to a sufficient extent, rather than relying upon their own independent view of the matter.

(5)

That reliance must have occurred in connection with some subsequent mutual dealing between the parties.

(6)

Some detriment must thereby have been suffered by the person alleging the estoppel or some benefit must thereby have been conferred upon the person alleged to be estopped sufficient to make it unjust or unconscionable for the latter to assert the true legal (or factual) position.

HMRC contends that the supplies made by the Partnership to FFL were not separate supplies of exempt stabling and zero-rated feed but a single composite supply of looking after animals, taxable at the standard rate.

HMRC rejects the claim that FFL enjoyed an exclusive right of occupation over any defined area, noting that the arrangement did not confer such rights and therefore did not fall within the exemption for land under Group 1 of Schedule 9 VATA 1994.

Nor does the supply qualify for zero-rating under Schedule 8, as any feed provided formed part of the overall service of animal husbandry. The basis for this conclusion is that FFL had no premises, land, equipment, or employees of its own and operated entirely from the Partnership’s farm. All aspects of FFL’s activities –including rearing, feeding, movement and treatment of animals, access by third-party suppliers, and farm administration – were carried out on that farm using its buildings, equipment, and services. The Partnership incurred capital, repair, and maintenance costs for land and buildings in making these supplies.

Invoices issued by the Partnership described the charges as “rental” but did not distinguish between accommodation and feed. HMRC considers that the elements supplied were so closely linked as to form an indivisible economic supply which it would be artificial to split. Alternatively, any provision of feed or access to land was ancillary to the principal supply of farming facilities and shared its tax treatment.

HMRC rejects the Partnership’s claims based on legitimate expectation and estoppel on the grounds that no binding assurance was ever given regarding the VAT treatment of the current arrangements. HMRC submits that the Partnership has not identified any statement that was clear, unambiguous, and devoid of qualification, nor have they demonstrated that full details of the arrangements were disclosed when seeking any ruling. Historic audits and acceptance of earlier practices do not, in HMRC’s view, create an enforceable expectation, as taxpayers are only entitled to be taxed according to statute, not concession or a mistaken view of the law. HMRC further contends that the Tribunal has no jurisdiction to entertain claims for compensation or to exercise a general supervisory role, and that the evidential basis for estoppel by convention is wholly lacking.

In the alternative, if the supplies were exempt, HMRC submits that the Partnership must calculate and restrict input tax accordingly. HMRC denies allegations of bad faith and asserts that claims based on legitimate expectation or estoppel are unsustainable.

The Partnership contends that the supplies made to FFL comprised two distinct elements: the provision of livestock accommodation (“bed”), which they say is an exempt supply of land, and the provision of feed (“breakfast”), which they say is zero-rated. They deny that these elements formed a single composite supply of services. At the hearing an alternative argument was advanced that the supply of silage is the principal supply and the other supplies constitute ancillary supplies.

They argue that the arrangements operated at their farm since 2014 were a continuation of long-standing practices previously accepted by HMRC. From 2000 onwards, Alan McFarland provided similar bed and breakfast facilities for third parties, and HMRC carried out inspections and audits without raising any objection to the VAT treatment applied. Later, two companies associated with the family – AM Livestock Ltd (“AML”) and Valley Feedlots Ltd (“VFL”) – were admitted to the Agricultural Flat Rate Scheme (“AFRS”) following detailed scrutiny by HMRC. The Partnership submits that these approvals created a legitimate expectation that the same VAT treatment would apply to the current arrangements and that HMRC is estopped from adopting a different interpretation absent of any change in law or circumstances.

The Partnership maintains that the contractual relationship with FFL was based on a Livestock Accommodation and Feed Agreement, under which FFL had exclusive use of the livestock housing at the farm. They assert that no other animals were kept there during the relevant period and that the agreement did not require them to provide services beyond accommodation and feed. Responsibility for animal husbandry, veterinary care, and decision-making rested with FFL and its agents. They argue that preparatory acts, such as moving feed from storage to housing, do not amount to the supply of a service.

They further contend that HMRC’s reliance on CPP and similar authorities is misplaced, as those cases concern different factual contexts. In their view, the provision of accommodation and feed are separate supplies, each constituting an aim in itself, and not ancillary to any overarching service. They also dispute HMRC’s suggestion that FFL lacked exclusive occupation, pointing to the agreement and the fact that all livestock housing was set aside solely for FFL’s use.

Finally, the Partnership submits that HMRC’s decision was influenced by unrelated disputes concerning the cancellation of AFRS certificates and outstanding VAT repayments, and that the change in position was arbitrary and unfair. They argue that the decision has caused significant financial hardship and that the appeal should be allowed.

Alan McFarland, as a sole trader, (“AMF”) carried on farming activities at 53 Ballagh Road, Clogher for many years before the Partnership was formed. The Partnership is the successor to AMF and commenced trading in 2014.

Whilst this appeal relates to VAT periods 11/14 to 05/17 and 08/17, we make findings in relation to earlier periods since (i) Mr McFarland’s evidence is that what happened on the farm on a day-to-day basis was the same in the periods under dispute; and (ii) Mr McFarland’s case is that it is relevant to the legitimate expectation claim. We accept that day-to-day activities were broadly similar across the periods, but note there were significant differences. For example, the nature of the business before supplies were made to FFL was that the cows never gave birth, however there were calves during the period supplies were made to FFL.

From 2000 to 2007, AMF kept cattle on what he describes as a “bed and breakfast basis” for two local families, the Dobson family (the “Dobsons”) and McCrea family (“McCreas”). AMF also had some cattle of his own and traded in the sale and purchase of livestock.

Each of the Dobsons and McCreas would visit the farm at least three days each week. They would come and select the cattle going to market. Mr McFarland was on the farm every day and would feed the cattle.

Mr McFarland accepted that the Dobsons would not have been a customer if he just sold silage – they required him to feed the cattle and to accommodate them.

AMF first registered for VAT in 2004. In box 24 of the application AMF indicated it intended to make exempt supplies of £100,000 over the next 12 months. This was clarified to be zero-rated supplies, not exempt, in a response to a request for information filed on 20 July 2004 by AMF. An HMRC meeting record of 22 July 2004 states that “I spoke to the trader who confirms he makes zero-rated not exempt supplies”.

AMF became aware at that time that both Dobsons and the McCreas were trading under the AFRS, which they understood to be financially advantageous. Therefore, in late 2007 an application was made to register AML and VFL on the AFRS. Both AML and VFL were awarded flat rate certificates on 12 December 2008, back-dated to the date of application. AMF remained standard rated, because of his cattle dealing activities. Both AML and VFL were owned by Alan McFarland and Diane McFarland.

Each of AML, AMF and VFL performed a different function:

On 17 October 2011 the AFRS certificates were cancelled for both AML and VFL, on the basis of protection of the Revenue. This was contested by AML and VFL, and others including Shields & Sons Partnership.

HMRC visited the farm on 26 September 2011. The visit note records that:

“Visit undertaken to obtain more information regarding the AFRS arrangements – see Garth Armstrong’s visit report re the pre cred for 02/09 and outcome of brainstorming by AAG.

Very shortly after the initial introductions Mr McFarland started shouting about his frustrations re our involvement in the checking of the repayment. He said he was going to ring his solicitor and tried and couldn’t get through. I asked him if he wanted me to come back another time when his solicitor was present. He said no-I asked him if he was sure- again he said no. I asked him not to raise his voice and he apologised saying he was very annoyed and frustrated.

We started with AM Livestock asking Mr McFarland various questions about the company- why it was set up - what it did etc. We then discussed the VAT registration of Alan McFarland and then very briefly due to time constraints (Mr McFarland had something to do late afternoon) Valley Feedlots. Quite often, Mr McFarland would start to raise his voice again depending on the question being asked.

…

The visit was quite fragmented as Mr McFarland jumped from one entity to another when responding to any questions we had. As Mr McFarland was under time constraints he asked us to list any documents we needed and he would arrange to have them for a further visit or send them to the office. We were happy with this and agreed to conclude the visit after we had had a quick look at the buildings where the cattle from the three entities were housed…”

The cancellation of the AFRS certificates led to the introduction of the arrangements whereby the Partnership made supplies to FFL. This was at the suggestion of Mr McFarland’s bank, Santander.

In July 2017, following the decision of the Advocate General in Shields & Sons Partnership HMRC paid AMF c.£527,000.

On 21 December 2017 Nugee J handed down the decision in Shields & Sons Partnership v HMRC [2017] UKUT 504 (TCC), following the decision of the CJEU in Shields & Sons Partnership v HMRC (C-262/16) [2017] STC 2205 on 12 October 2017.

On 26 January 2018 HMRC wrote to AMF stating that their primary decision was that the arrangements were abusive and so the right to deduct the flat rate additions was denied. It also, however, set out the following alternative decision:

“Alternative Decision

4.

If the decision given in paragraph 3 above is found to be wrong, I have decided that the supply by AMF to AML and VFL which includes the rearing, feeding, movement and treatment of animals, access by third party suppliers, farm administration, management and all other services carried out by AML constitutes a supply of services which are taxable at the standard rate.

…

Alternative Decision

41.

If it transpires that the arrangements are not an abusive practice and the transactions operated as you contend, then I have decided that, as all aspects of AML’s and VFL’s activities including the rearing, feeding, movement and treatment of animals, access by third party suppliers, farm administration and all other services are carried out on AMF’s premises by AMF, that the supply constitutes a single supply of standard rated services.”

The supply subject to appeal is by the Partnership to FFL, in the periods 11/14 to 05/17 and 08/17. FFL was incorporated in July 2014 and started trading in November 2014. The directors of FFL and sole shareholders were Alan McFarland and Diane McFarland.

Mr McFarland exhibited a “Livestock Agreement and Feed Agreement”, (the “LAFA”) dated 1 November 2014, between the Partnership and FFL.

We have some concerns about the reliability of this document. It contains the VAT number of FFL, however this was only created on 21 December 2016, although backdated to 1 November 2014. Mr McFarland stated that the page including the number had been inserted at a later date, which could be seen from the dots along one side of the page, which were a fault of his printer. However, he had no satisfactory explanation when it was put to him that the dots were on other pages as well. The LAFA was only provided to HMRC after witness statements were served. This is surprising since Mr McFarland had previously indicated he would provide this (on 2 and 31 July 2018). HMRC’s note of a telephone call from Mr McFarland on 31 July 2018 records:

“He had the contract between A&D McF & Forge Farms which he will send in now – I asked him why he’d not sent this previously. Mr McF replied that he though that papers Christine McC had seen were sufficiently clear to allow her to agree with his view of the correct liability, of what he maintains are B&B supplies to Forge.”

It was therefore surprising that in oral evidence Mr McFarland indicated he did not think HMRC would want to see the document.

Relevant provisions of the agreement are as follows:

Clause “4. Contractor Farm Details” under “Address of Farm on which cattle will be reared:” are written in manuscript two address in County Tyrone. Under “Livestock shed details and Livestock Handling Facilities details:” is written in manuscript “Accommodation for 1,500 cattle”.

Clause “6. Contract Rearing Details” stipulates the following:

“6.1

The Contractee requires the Contractor to provide/accept the following:

Grazing System

- An adequate standard of stock proof fencing which must be maintained on all fields on which cattle are grazed.

Along with secure gates.

- That the Contractor is completely responsible for the provision of adequate grass cover, so that days to slaughter can be minimized.

Indoor feeding system

- Appropriate livestock housing and handling facilities, these must be maintained to an agreed standard for the type of livestock which are the subject to this agreement.

That the Contractor will be completely responsible for the provision of reasonable quality silage, so that days to slaughter can be minimized

Animal Health Requirements

- That the Contractor will be responsible for complying with all animal testing requirements, routine dosing and vaccination must be completed on a timely basis, water drinkers must be checked twice daily along with the daily cleaning of feeding equipment.

- That all animals should be double tagged at all times and the responsibility for the ordering and insertion of tags rests solely with the contractor.

- The Contractee pays for all tags ordered.

Sick pen/isolation facility

- This must be a bedded floor area with adequate water, lighting and feeding facilities.

…

Feed

- The Contractor must provide adequate covered storage facilities for bulk delivery of supplementary feed (for e.g. storage bins/suitably enclosed dry shed)

- The Contractor must provide all agricultural machinery required so that cattle can be fed a Total Mix Ration (TMR) diet.

Reactor(s)

- In the case of there being a reactor animal, a requirement is that the Contractor cleans and disinfects all livestock housing and handling facilities.

Records

- All herd records, veterinary records, feed records and any other records deemed necessary, must be kept up to date at all times to comply with the statutory requirements, for which the contractor is solely responsible and in the interests of good record keeping between the Contractee and Contractor.

Farm Quality Assurance

- The Contractor’s herd number and premises must be fully farm quality assured, at all times.

Cross Compliance

- The disposal of all livestock slurry and bedded manure is the sole responsibility of the Contractor who should maintain the statutory documents to comply with the Nitrates and Phosphorous Directives.

Access

- The Contractee shall have unhindered access to the Contractor’s property for the purposes of inspecting and selecting their livestock.

Despatch Movement Documents

- The Contractor accepts that he must provide all necessary documentation for the sale/export of the Contractee’s cattle as and when required.”

Clause “10. Payments related to this contract” stipulates the following:

“- The Contractee will be responsible for payment of the agreed daily charge calculated on a per head basis.

- For the grazing system an agreed price of £ 0.50 per head/day

- For the indoor system an agreed price of £ 0.50 per head/day

- The Contractor will be responsible for providing a monthly invoice to the Contractee clearly showing the number of cattle on their holding at the close of business each day.

- The provision of feed and accommodation is not subject to VAT.

- Payment terms are agreed between the parties and are flexible. Charge rate to be reviewed after 12 months.”

We were provided with several examples of invoices from the Partnership to FFL. The invoices dated 31 October 2018 and 31 December 2018 are substantially identical and state they are for

“Bed and Breakfast Charge for month ended 31st [October/December] 2018 in accordance with attached schedule.”

Both specify a single fee (respectively 15,364.40 and £14,354.80) and then add:

“VAT @ 0%”

The attached schedules lists the stock on each day, and contain at the bottom the following adjustment:

“Less: TW & SL Parkinson charge for April (@ 40p/head) – 0.00

Less: R J & C McFarland charge for April (@ 50p/head) - est on 350 head -– £2,500.00”

Mr McFarland was unable to offer any satisfactory explanation for this adjustment, although he identified TW & SL Parkinson and R J & C McFarland. It is wholly unclear why any adjustment would appear on an invoice to FFL.

The schedule also shows a daily charge of £0.40, not the £0.50 specified in the agreement. This change was agreed with the Partnership’s financial advisor, Mr David Hazard, although Mr McFarland could not recall when this was agreed.

Earlier invoices (for 31 December 2016, 31 January 2017 and 28 February 2017) do not refer to “Bed and Breakfast” but instead to:

“Rental Charge for month ended […] in accordance with attached schedule.” [our emphasis]

No schedules have been provided in relation to such earlier invoices (although they were requested by HMRC on 20 May 2019). The invoices were created by the Partnership’s accountants. Mr McFarland indicated that the description was changed in case the invoices were forwarded to HMRC as part of the dispute, as he wished the description to be an accurate reflection of the practice on the farm.

The accounts of FFL for the year ended 31 October 2016 also show the supply as “Rental charge” (£644,854). Other separate amounts are for “Vet & AI” (£39,177), “Haulage” (£46,776) and “Feedstuffs” (£644,854), being the concentrate: not the silage that is included in the “Rental charge”.

Viewing the evidence in the round, including Mr McFarland’s witness evidence, we agree with the closing submissions of HMRC that the supply included the following:

Feeding the cattle daily. This took 2-3 hours each day and generally involved:

In certain periods the cattle were not kept indoors but sent out to graze. This was done as a method of farm management.

Mr McFarland also confirms that he checked the water twice a day. He confirmed this was the “most important part of the equation”.

Feeding time was an opportunity to spot unwell cattle. If cattle did not rise when the silage was put in the silage pit Mr McFarland would give them a pat to see if they would get up. If they would not get up a vet would be called. However this daily check, while carried out, was not a contractual obligation. We therefore do not include it when considering the supply.

Maintaining the premises, which included:

The cattle, whilst owned by FFL, for record purposes belonged to the herd of the Partnership. It was therefore only the Partnership that could do things such as confirm new purchases of cattle on the AFIS Online system or order replacement tags. Cattle must be double tagged, since if they lose both tags they cannot enter the food chain: if only one tag is lost it can be replaced.

The Partnership was also responsible for maintaining farm quality assurance.

We do not accept that the Partnership made any exempt supply of land to FFL. The evidence does not establish that FFL was granted the right to occupy any defined area of land or buildings as if it were the owner, nor that it enjoyed any right to exclude the Partnership from the sheds or surrounding facilities. On the contrary, the Partnership remained in active occupation at all times, using the sheds for carrying out its obligations under the LAFA. When asked in cross-examination if the Dobsons or McCreas could have excluded him from the land, Mr McFarland clearly found the idea fanciful.

The arrangements were therefore not the passive grant of a right over immovable property described in Sinclair Collis, but a licence for the use of operational farming facilities under the Partnership’s control. In these circumstances, no supply falling within Item 1 of Group 1, Schedule 9 VATA 1994 arose.

We find there to be a single standard rated supply of looking after the cattle.

The supplies made by the Partnership to FFL fall squarely within the Levob category, being so closely linked that they form, objectively, a single, indivisible economic supply, which it would be artificial to split.

FFL received a fully integrated package of services directed towards the rearing and finishing of cattle: daily mixing and provision of feed, management of water and housing, maintenance of handling facilities, statutory record‑keeping, and disease‑control obligations. These activities were inseparable in practice and indispensable for the operation of FFL’s cattle‑finishing business. Neither the accommodation nor the feed, nor any other individual component, was offered or taken independently.

Commercially, offering the silage either without the feeding or without the housing would have been a far less attractive offer. Indeed, it was admitted that the Dobsons would not have accepted the supply of silage without feeding. Whilst the Dobsons are not FFL, Mr McFarland placed significant weight on the continuity of the business.

There was a single price for the complete service. There was also a single invoice and a single description of the supply on the invoice. There was no indication on the invoice that both exempt and zero-rated services were being supplied (rather it indicated the entire supply was zero-rated).

The economic reality is therefore that the Partnership provided a single composite service of animal rearing and management, to which all elements – including accommodation and feed – were merely constituent elements. Splitting the supply in the manner contended for by the Partnership would be artificial and contrary to the principles in Levob.

We note that on our findings the “bed and breakfast” supplies differ from those in Own. While that case does not bind us, we note crucial differences in this case include that the services are required to be provided under contract (not just only to comply with basic legal obligations under the general law) and the frank admission of Mr McFarland that the supply of silage without the additional services would be commercially unattractive.

We also dismiss the alternative argument of the Partnership that the supply of silage was the principal supply, with all other elements, including accommodation and the wider activities being merely ancillary. The provision of silage was not an aim in itself for FFL. The evidence shows that silage represented only a modest part of the total feed cost, when compared with the concentrate feed purchased by FFL. Silage was mixed, prepared and administered as part of the wider daily feeding regime using the Partnership’s machinery, expertise and facilities, and it formed only one element of a broader package of rearing and management services indispensable to FFL’s cattle-finishing operation. Silage cannot sensibly be separated from the accommodation, handling, record-keeping and welfare-related functions that the Partnership also performed. It was, therefore, not the principal supply but an integrated component of the single composite supply identified above.

We find that the Partnership has not established any basis for a legitimate expectation.

No clear, unambiguous and unqualified representation was ever made by HMRC that the supplies in issue would be treated as exempt or zero-rated. Indeed, Mr McFarland accepted in evidence that HMRC had never given him any written or oral assurance on the VAT liability of these arrangements, nor had he ever sought a formal ruling. The historic dealings relied upon – such as earlier visits, partial repayments relating to different entities, or the treatment of unrelated AFRS matters – did not concern the Partnership’s supplies to FFL and, in any event, do not demonstrate that HMRC had reached or communicated any settled view on the liability of these supplies.

The payment made by HMRC to Mr McFarland in July 2017 does not give rise to any legitimate expectation in respect of the VAT treatment of the Partnership’s supplies to FFL. That repayment related solely to the cancelled AFRS certificates of AML and VFL and was made following the Advocate General’s opinion in Shields & Sons Partnership, not as any statement of HMRC’s view on the liability of the supplies now in dispute. The repayment was expressly partial, and did not purport to address, still less determine, the VAT position of the Partnership’s later arrangements with FFL. No reasonable taxpayer could regard that payment as a clear, unambiguous assurance – still less one devoid of qualification – about a different set of supplies made at a different time by a different taxable person.

Furthermore, HMRC’s letter of 26 January 2018 clearly specifies HMRC’s “Alternative Decision” that the supplies by AMF are standard rated.

The timing of this payment is also significant. It will be recalled that the periods in dispute are periods 11/14 to 05/17 and 08/17. Hence it is unclear, even on the Partnership’s own case, how the Partnership relied on any such assurance.

Moreover, the Partnership did not “place their cards face up on the table” to provide HMRC with full and consistent information about the nature of their activities, a prerequisite for any legitimate expectation to arise.

Whilst the Partnership suggests HMRC had full information from the time of the visit in 26 September 2011 we note that the record of that meeting states that Mr McFarland “started shouting” and “would start to raise his voice again depending on the question being asked”. It twice mentions “time constraints” and that further documents were promised. It also mentions that “visit was quite fragmented as Mr McFarland jumped from one entity to another when responding to any questions we had”, which accords with our experience of his answers to questions during cross-examination. In those circumstances we do not consider it likely that HMRC got the full picture of what was going on at the farm from the visit. But in any event, that related to a different set of supplies made at a different time by a different taxable person.

Other parts of the evidence show that the Partnership has presented a contradictory and inconsistent account of the facts to HMRC. On 7 September 2017 Hassard McClements Limited wrote to HMRC stating:

“23.

AML is not charged by AMF for use of cattle housing facilities, premises, haulage, machinery, utilities, feeding costs, veterinary fees and management fees. These costs are included in the price of the cattle and contain the ‘bed and breakfast management’ fee that is common practice in the industry. The fee is charged by AMF for looking after the cattle at a rate of approximately £20 per individual cattle.” [our emphasis]

The letter went on to say that:

“41.

… VFL incurs a ‘bed and breakfast’ as previously detailed from AMF who looks after the cattle.” [our emphasis]

This suggests AML was providing a bundle of services. The relevance of this is that AMF states that the nature of the daily activities performed by the Partnership were the same as those previously performed by him as a sole trader.

But on 7 September 2017 Hassard McClements Limited wrote to HMRC stating:

“Our client, Alan McFarland, has confirmed there is no animal husbandry, rather each company and its vets provide their own husbandry. The partnership supplies and delivers feed only.”

Another inconsistency is that, in the further and better particulars, that Mr McFarland adopted as his witness evidence, he says:

“During this period no livestock was kept by the Appellants. There was no other livestock on the farm as the Appellants were operating solely an arable farm alongside the bed & breakfast facility.”

However, in his evidence Mr McFarland stated that in addition to the cattle owned by FFL there were also cattle owned by the Partnership and sheep owned by the partnership on the farm.

We have also noted that Mr McFarland failed to supply the Livestock Agreement and Feed Agreement to HMRC until after service of witness statements, despite being asked for it in 2018 (see [55] above).

In these circumstances, the conditions articulated in MFK and Veolia are not met, and no legitimate expectation can arise.

For that reason we can deal very briefly with the status of Zeman. We consider that decision binding on us for the reasons stated by Judge Frost in Treasures of Brazil. However, as that is not material to our decision given our findings earlier in this section, we do not consider it necessary to discuss the issue further having regard to the Practice Direction from the Senior President of Tribunals: Reasons for decisions (4 June 2024).

We reject the Partnership’s reliance on estoppel by convention. The doctrine requires, at minimum, a clearly shared common assumption between the parties, conduct by HMRC amounting to assent to that assumption, reliance by the Partnership on that shared assumption in subsequent mutual dealings, and resulting detriment. None of these elements is present.

There is no evidence of any common assumption – express or implied – between the Partnership and HMRC as to the VAT treatment of the supplies now in dispute. This is essentially for the same reasons stated in relation to legitimate expectation. HMRC did not adopt, affirm or encourage any such assumption in correspondence, meetings or conduct. Indeed, the evidence shows continued efforts by HMRC to clarify the nature of the supplies, inconsistent descriptions provided by the Partnership, and an absence of the full and accurate disclosure required for any such assumption to arise. Nor is there any evidence HMRC assumed some element of responsibility for a common assumption.

The Partnership has not demonstrated reliance on any shared assumption in accounting for VAT during the periods under appeal. Nor is there sufficient detriment flowing from such reliance to make it unconscionable for HMRC to seek the correct amount of tax.

In these circumstances, the stringent requirements set out by the Supreme Court in Tinkler are wholly unsatisfied, and estoppel by convention cannot arise.

It follows that the appeal is dismissed.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.