In a case of interest to anyone involved in agriculture, a farming company which traded in the market for units of EU subsidy as a means of raising capital to pay off its debts and develop its business won the right to a £1 million VAT rebate.
Over a four-year period, the company paid about £7.7 million for almost 35,000 units of Single Farm Payment Entitlement (SFPE). It paid VAT on the tradable units, which generated substantial subsidies from the Scottish government. The latter were used to pay off the company’s overdraft and were earmarked to fund construction of an income-generating wind farm and a number of new farm buildings.
HM Revenue and Customs (HMRC) refused the company’s bid for a VAT rebate on the basis that the SFPE units had been purchased for the sole purpose of obtaining subsidies, which was a non-economic activity outside the scope of VAT. However, those arguments were rejected by the First-tier Tribunal (FTT) and the company was awarded a repayment totalling £1,054,852.
In rejecting HMRC’s challenge to that decision, the Upper Tribunal (UT) found that the financing opportunity afforded by the purchase of the units did not form a distinct business activity but was a wholly integrated feature of the farming enterprise. There was ample evidence to support the FTT’s conclusion that there was a direct and immediate link between the cost of the units and the company’s taxable business supplies.