MHA MacIntyre Hudson, represented Frank Smart & Sons Ltd, a family-owned farming company in Aberdeenshire, Scotland, in its successful case against HMRC. The case was for the repayment of VAT on the purchase of 34,477 units of Single Farm Payment Entitlements.
HMRC had refused the claim on the grounds that there was a direct link between the purchase of the entitlements and the receipt of subsidy. As the subsidy was outside the scope of VAT the claim for VAT repayment failed the test that input tax must linked to a VATable supply.
Glyn Edwards, VAT director at MHA MacIntyre Hudson, argued that VAT should be recoverable because the subsidies were used to develop the farming business, ie to build cattle sheds, repay a bank loan and to build a wind farm. The Supreme Court’s decision was unanimous in favour of Frank Smart & Sons Ltd.
Edwards commented: “If HMRC had won instead, every business in receipt of subsidy could have been subject to a restricted right of VAT recovery.
“In farming, the likely impact would have been that VAT recovery would be restricted, in whole or part, on any costs associated with receipt of subsidy. For example, VAT on farming equipment would be at risk if used to keep land in good agricultural and environmental condition (GAEC), a requirement attached to many subsidies. VAT on professional costs and general overheads would also have been at risk.
“By establishing that subsidy has no role to play in determining VAT recovery, the Supreme Court has asserted an important principle which will protect the true value of subsidy as we move into the post-EU era. In the context of Brexit, the Supreme Court’s decision could be a sign of things to come."