Tag Archives: VAT-right-over-land

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: Is a car wash a car park? The RK Fuels Ltd case

By   26 April 2021
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Latest from the courts

More on car parking.

In the RK Fuels Ltd First Tier Tribunal (FTT) case, the issue was whether the lease of an area of the supplier’s petrol station to a business operating a car wash was an exempt right over land or whether it was excluded from the exemption because it was a car park (the ‘grant of facilities for parking a vehicle’ VAT Act Schedule 9, Grp. 1, Item [1] [h]) and was therefore standard rated.

Background

Although the tenant operated a car wash (and not a car park) and this was a permitted use under the commercial use agreement, the car wash was located on land used as a car park.

The appellant contended that the car park was rented to carry out the business of car washing, and this is clearly stated in the lease agreement. It is not rented as a car park to park cars. Furthermore, a VAT inspection was carried out by HMRC and the point about the rental income being exempt was raised and accepted by HMRC.

HMRC relied on, inter alia, the fact that the relevant part of the lease stated that “the landlord agrees to rent to the tenant the car park. The car park will be used for only the following permitted use (the Permitted use): as a car wash business. Neither the car park nor any part of the premises will be used at any time during the terms of this lease by the tenant for any purpose other than the permitted use.” And the fact that the appellant was permitted an alternative use of the car park to run a car wash does not cause the area to cease to be a car park, nor does it mean that it cannot be used as a car park. There is a need for cars to be parked on the land whilst waiting to be washed, dried, and cleaned. Without the ability to park a car on the land, the permitted use could not occur.

Decision

The appeal was dismissed. The judge found that a grant of facilities for parking vehicles was made, either expressly or by necessary implication and so was standard rated. Further, the occupation of the car park under the terms of the lease agreement is a means to enable the car wash facility to operate. The site for parking is any place where a motor vehicle may be parked. It was also found that the fact that a person may not leave a vehicle does not render a vehicle any less parked.

The fact that the land was referred to as a “car park” consistently throughout the lease agreement was always going to be a problem for the appellant.

The court went on to consider whether a licence over land had been granted. It is a long-standing principle that a central characteristic of a licence over land is the right to exclude others. As the tenant had no right to exclude others from the relevant land (because, as an example given; customers of the petrol station could park there to visit the shop) there was no exempt supply of the right over land.

Commentary

There were other subsidiary issues, namely on whether an option to tax had been made but this was redundant considering the court’s decision on the substantive point. The decision was unsurprising even considering the guidance set out in VAT Notice 742 para 4.3:

 “When a supply is of land rather than parking facilities 

If you grant an interest in, or right over or licence to occupy land in the following circumstances, your supply will be exempted, unless you have opted to tax… 

·         letting of land or buildings where any reference to parking a vehicle is incidental to the main use..”

Even if the argument could be made that the parking was incidental, as the decision was that there was not an interest in, or right over or licence to occupy land the ancillary use point fell away.

Another nail in the coffin of the appeal was that the court found that the decision in the Fareham Borough Council [2014] TC04129 (which found that the right to operate was not an exempt right over land) applied in this case.

Care should be taken when analysing the VAT treatment of a lease. It is tempting to consider that if there is a lease, and it is of land, it is sufficient to merit exemption, but this case demonstrates that further consideration must always be given.