VAT case update: “Bed and breakfast” for cattle treated as standard-rated

A recent tax tribunal case will be of interest to farmers who rear or finish cattle on behalf of other businesses.

The case looked at the VAT treatment of arrangements where one farmer houses and feeds cattle owned by another business. The Tribunal decided that the services provided were a single supply that should be charged at the standard rate of VAT.

Background to the case

A farming partnership entered into an agreement with a company to house and feed cattle. Under the arrangement the partnership provided housing, prepared silage and feed, fed the cattle and looked after their day-to-day care and management.

The partnership argued that the arrangement should be treated as two separate supplies for VAT purposes. They said the housing element should be treated as exempt land and buildings, while the feed provided to the cattle should be zero-rated.

They also argued that the feed was the main supply, with the other services simply supporting it.

Tax Tribunal decision

The Tribunal disagreed and concluded that the arrangement was a single combined service of caring for and managing livestock. Because of this, the whole supply was subject to VAT at the standard rate.

The Tribunal noted that the cattle owner did not have control or occupation of the buildings or land. The partnership remained responsible for feeding, caring for and managing the animals.

As a result, the various elements of the arrangement were closely linked and formed one overall service rather than separate supplies.

Previous HMRC treatment did not protect the taxpayers

The partnership also argued that HMRC had previously accepted the way they were accounting for VAT, and that they should therefore be allowed to continue using the same treatment.

However, the Tribunal rejected this argument.

It found that HMRC had never clearly confirmed that the VAT treatment was correct. Because there was no clear confirmation from HMRC, the partnership could not rely on the fact that the approach had not been challenged in the past.

In simple terms, just because HMRC did not question the VAT treatment before does not mean it was correct or that it can continue in the future.

What this means for farmers

This case highlights an important issue for farmers involved in livestock arrangements.

Where a farmer provides housing, feed and day-to-day care for animals owned by another business, HMRC is likely to view this as a single livestock management service. In most cases this type of service will be subject to VAT at the standard rate.

Trying to split the arrangement into exempt land and zero-rated feed may would not work if the services are all part of one overall livestock care arrangement.

Key point

Livestock finishing or rearing agreements are increasingly common, but the VAT position will depend on exactly what services are provided and who is responsible for the animals.

Farmers entering into these arrangements should review the VAT position carefully to avoid unexpected VAT bills later.  Please do speak to us, so we can help you get the VAT treatment right.

Written by:    Heather Langtree