In Alan and Diane McFarland (a partnership) v HMRC [2026] TC09799, the First Tier Tribunal (FTT) found that the supply of 'bed and breakfast' services provided for cattle was not two separate supplies for VAT purposes.
Alan and Diane McFarland's partnership made supplies of 'bed and breakfast' services for cattle to Forge Farms Livestock Limited (FFL).
The partnership believed it made two separate supplies for VAT purposes: an exempt supply of the provision of livestock accommodation (bed) and a zero-rated supply of the provision of feed (breakfast).
- HMRC contended that the supplies were not separate but instead a single supply of looking after animals, taxable at the standard rate.
- The VAT in dispute was £120,828.
- All aspects of FFL's farming activities, including rearing, feeding and movement of animals, were carried out on the partnership's farm.
- The partnership incurred capital, repair and maintenance costs for land and buildings in making its supplies.
- Invoices issued for the partnership described charges as 'rental' and did not distinguish between accommodation and feed.
- HMRC believed the supplies were so closely linked that it would be artificial to split them.
- Alan McFarland, representing himself, presented an alternative argument at the hearing that the supply of silage was the principal supply and everything else was ancillary.
- Additionally, Mr McFarland argued that the appeal should succeed on the basis of legitimate expectation or estoppel by convention, regardless of the correct classification.
- Mr McFarland had operated the arrangements at his farm since 2014, and the arrangements were a continuation of long-standing practices previously accepted by HMRC.
- From 2000 onwards, similar 'bed & breakfast' arrangements were provided for third parties. HMRC had carried out inspections and audits of these and had not raised any objections to the VAT treatment applied.
The First Tier Tribunal (FTT) found that:
- The partnership did not make an exempt Supply of land to FFL.
- No evidence was provided that established that FFL was granted the right to occupy any defined area of land or buildings (Item 1, Group 1, Schedule 9 VATA 1994), nor that it enjoyed any right to exclude the partnership from the sheds or surrounding facilities.
- The partnership remained in active occupation at all times.
- The arrangements were therefore not a passive grant of right over immoveable property but a license for the use of operational farming facilities, meaning no supply fell within Item 1, Group 1, Schedule 9 VATA 1994.
- The supplies were so closely linked that they formed a Single indivisible economic supply; splitting them would be artificial.
- FFL received a full package of services, including daily mixing, provision of feed, management of water, housing, disease control obligations, amongst others, that were in practice inseparable for the operation of the business. No individual component was offered or taken independently.
- There was a single price, single invoice and single description on the invoice.
- The provision of silage was not the principal supply. The supply of silage only represented a modest part of the total feed costs, forming one element of a broader package.
- The partnership did not establish any basis for a legitimate expectation.
- No clear, unambiguous and unqualified representation was ever made by HMRC that the supplies in this issue would be treated as exempt or zero-rated.
- Mr MacFarland accepted in evidence that HMRC had never provided any assurance on the VAT treatment of the arrangements.
- There was no clearly shared common assumption between parties, meaning the estoppel by convention argument was rejected.
The appeal was dismissed.
Useful guides on this topic
Mixed supplies: Single or Multiple supply?
Is a mixed supply a single or multiple supply for VAT purposes? What tests and case law apply?
Land & Property VAT (Subscriber guide)
An outline of the VAT treatment of some of the more common supplies of land and property.
Partnerships and VAT
Like any other business, partnerships are required to register for VAT once their taxable turnover passes the applicable threshold. However, there are some complications specific to partnerships.
Grounds for appeal: Legitimate expectation
What is legitimate expectation and when is it a ground for appealing a tax penalty or HMRC decision?
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Alan and Diane McFarland (a partnership) v HMRC [2026] TC09799