Tag Archives: VAT-composite

VAT: Composite or separate supplies – The A & D McFarlane case

By   10 March 2026
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Latest from the courts

Yet more on composite or separate supplies. As a background to the issue please see previous relevant cases here here here and here. This is the latest the seemingly endless and conflicting series of cases on whether certain supplies are multiple or single. 

In the First-Tier Tribunal case (FTT) of Alan and Diane McFarland the appellants operated a ‘bed and breakfast’ for other people’s cattle.

The issue

The VAT issue was whether there were separate supplies:

  • zero-rated supply of animal food
  • exempt supply of land.

Additionally, the appellant contended that the supply of animal food was a principal supply, and everything else, including the land, was ancillary. 

HMRC took the view that there was a single taxable supply of ‘animal care’ and not separate supplies of exempt stabling and zero-rated feed. It also rejected the claim that the appellant had an exclusive right of occupation over any defined area, noting that there was no agreement conferring such a right with the consequence that this could not be an exempt supply. On the zero-rated animal foodstuffs point; HMRC concluded that the supplies do not qualify for zero-rating as the food provided formed part of the overall service of animal husbandry.

Legislation

  • Exemption: right over land or any licence to occupy land – The VAT Act 1994, Schedule 9, Group 1,  item 1
  • Zero-rating: animal feeding stuffs – The VAT Act 1994, Schedule 8, Group 1, Item 2.

Decision

The FTT found that there was a single standard rated supply of ‘looking after’ cattle. The supply made by the appellant fell squarely within the Levob (Levob Verzekeringen BV [C-41/04]) category, being so closely linked that they form, objectively, a single, indivisible economic supply, which it would be artificial to split. – HMRC notes on Levob here.

The supply was a fully integrated package of services directed towards the rearing and finishing of cattle. This included: 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 the recipient’s cattle‑finishing business. Neither the accommodation nor the feed, nor any other individual component, was offered or taken independently. 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.

The appellant provided a single composite service of animal rearing and management, to which all elements, including accommodation and feed, were merely constituent elements.

The Tribunal also dismissed the alternative argument of the that the supply of food was the principal supply, with all other elements, including accommodation and the wider activities being merely ancillary. The provision of food was not an aim in itself. The food could not sensibly be separated from the accommodation, handling, record-keeping and welfare-related functions that were also performed. It was, therefore, not the principal supply but an integrated component of the single composite supply.

The appeal was consequently dismissed.

Commentary

Yet another case on the perennial composite/single supply issue. This case was relatively straightforward and the outcome was no surprise. It is essential that businesses that potentially deal with agent/principal matters or make supplies at different VAT rates consider their position. Contracts, other documentation and the commercial reality need to be considered. We recommend that in such circumstances a review is carried out specifically to establish the correct VAT position .

VAT Single and Multiple Supplies

By   11 May 2021
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Accounting for VAT can be problematic when the supply of goods and services consist of multiple components. In such cases it is necessary to consider whether each component of the supply should be assessed independently or whether the components should be dealt with as one.

Precise treatment is not specifically addressed in UK or European Law and instead a decision is made based upon a review of the essential features of the transaction. For instance, a meal on an airplane is a normal feature of the zero rated travel provided and is not considered a separate standard rated supply to the travel itself. Conversely a meal on a river cruise is a separate supply to that of the zero rated cruise itself and as such is a separate standard rated supply.

A single price is not therefore a decisive indicator of a single supply. Instead what needs to be considered is whether there is just one principal supply or several distinct independent supplies that are provided.

Through the development of case law and HMRC guidance the following situations have been clarified. I have written about the most important, recent cases here, here, here, here and here.

The 50% rule

If a distinct supply represents 50% or more of the overall cost it can not be considered ancillary to the principal supply. In such cases an apportionment will usually be required.

Postal charges

VAT on postage follows the treatment of VAT on the main supply. For example, for mail order items the postage on book is zero rated, whereas the postage on a printer is standard rated.

There are however situations where postage is treated as a separate supply to the goods if, for example, the postage is not expected and is an additional request by the customer.

Subscriptions

If there is one particular reason for the subscription then the fee is considered to be one single supply. If there are separate reasons for the subscription then the fee should be proportioned accordingly and the appropriate VAT treatment should be applied to each element of the supply.

Printed matter

Usually books, newspapers, magazines and music are zero rated whilst items seen as stationery such as membership cards and notebooks are standard rated. For materials supplied with items that can be used independently then there are two supplies, for example a film supplied with a magazine.

A package test can also be applied, where if there are more zero rated items then standard rated items the entire package becomes zero rated, or vice versa.

Two part tariffs

If there are two payments relating to a single supply, the two payments are treated as one and the VAT treatment follows that of the one supply.

Supplies involving land

Services provided on land tend to be viewed as one complete supply. The land aspect is not usually a separate service that the customer receives and instead allows the main service to be provided.

One instance where this may not apply is service charges, which may need to be apportioned if they contain independent supplies such as rent and cleaning. Independent supplies are made if the customer can choose which of the services they would like.

Summary

Card Protection Plan Ltd has become a landmark case in determining the VAT treatment for single and multiple supplies. In this case the ECJ ruled that standard rated handling charges were not distinct from the supply of exempt insurance. It was noted that ‘a supply that comprises a single service from an economic point of view should not be artificially split’. Notably many subsequent court decisions have since followed this outcome thereby suggesting a general lean towards viewing cases as single supplies where there are reasonable grounds to do so.