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HMRC loses argument over VAT and taxable farming activities in Smart case

In the case of Frank A Smart & Sons Ltd [2017] CSIH 77, the appeal at the Scottish Court of Session focused on whether a farming company could reclaim VAT on the purchase of single farm payment entitlements (SFPEs). Croner Taxwise VAT consultant Julie Green considers the implications of the appeal judgment against HMRC

In HMRC v Frank Smart & Son Ltd [2017] CSIH 77 the Court rejected an appeal by HMRC. The case concerned the rights of a farming company to reclaim VAT on the purchase of single farm payment entitlements (SFPEs). HMRC argued that the VAT incurred on the purchase of SFPEs had a direct and immediate link to the subsidies which the taxpayer earned as a result.

The taxpayer had claimed repayment of VAT amounting to £1,054,852.28 which was paid on its purchase of 34,477 units of SPFEs.

As those subsidies are outside the scope of VAT, HMRC believed that VAT on the purchases was irrecoverable as it did not directly relate to any VATable sales activity.

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