In Little Rascals Pets Limited v HMRC [2017] TC05811 the First-Tier Tribunal (FTT) agreed with HMRC that puppies bought-in by the company are not second-hand goods for VAT.

  • Little Rascals Pets Limited (LRP) accepted that it is correct to account for VAT upon the full sale price of any home-bred puppies or puppies that were acquired from a VAT registered breeder.
  • LRP were of the view that the second-hand goods scheme should apply to any puppies acquired from a non-VAT registered breeder, such that VAT is only payable on the profit margin.
  • HMRC were of the view that VAT should be accounted for on the full sale price irrespective of the VAT status of the suppliers. HMRC issued a ruling to that effect which LRP appealed.

The case centred around whether puppies acquired from a non-VAT registered supplier could be considered second-hand goods:

  • Second-hand goods are tangible movable property suitable for further use, as it is, of after repairs.
  • To be suitable for further use, it must already have been used.
  • LRP contended that the puppies had been used as pets by the non-registered supplier and so had been used and were suitable for further use.
  • HMRCs contention was that they were not used when bought and that there was a Court of Justice of the European Union (CJEU) case which showed that animals bought from a breeder cannot be second-hand goods.

The FTT ultimately agreed with HMRC that the sale of the puppies is a taxable one:

  • Evidence suggested that the non-VAT registered breeder considered the puppies as stock and had not used them as pets.
  • The FTT considered that the puppies had been too young to have been used as anything other than stock.
  • They were bound by the CJEU case, Förvaltnings AB Stenholmen v Riksskatteverket [2004] STC 1041, such that any puppy acquired from a breeder could not be a second-hand good.
  • Even if that case did not bind them, they were of the view that the puppies had not been used as pets by the seller, so had had no prior use.
  • As there had been no prior use, they were not suitable for further use.

This meant that when LRP acquired the puppies, they were not second-hand goods.

The FTT also confirmed that the puppies had not become second-hand goods by virtue of LRP’s ownership:

  • LRP had not used the puppies during its ownership.
  • They were bought with the intention of being sold for profit and regarded as valuable stock.
  • This meant they needed to be looked after, and that care did not constitute use by LRP.

This meant that the puppies could not be considered second-hand goods when sold by LRP.

HMRC’s ruling was upheld and VAT is chargeable on the full sale price when sold by LRP.

Our guide:

Margin scheme

Case: Little Rascals Pets Limited v HMRC [2017] TC05811


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