News & Events

David Small succeeds in £1m VAT case before UKSC


As reported in yesterday’s SLN and by the BBC, in its judgment of 29 July the Supreme Court has unanimously dismissed HMRC’s appeal from the Court of Session in HMRC v Frank A Smart & Son Ltd.

The taxpayer in the case was a small family farming business which bought rights to subsidy in the form of units of entitlement to Single Farm Payments (a type of European subsidy which was phased out in 2015). It aimed to use the annual payments which it received to build up capital and expand its business. It had to pay VAT on the cost of the units and reclaimed the VAT which it had paid on the basis that all the sales it made, both current and future – in its expanded business – would themselves be subject to VAT. HMRC refused the claim and the matter went to appeal in the tax tribunals then, on further appeals by HMRC, to the courts.

David Small of Arnot Manderson Advocates acted as sole counsel for the taxpayer throughout. He said “I am delighted that after five years of litigation in the tribunals and courts the Supreme Court has upheld my client’s claim. Although the case was about the cost of farming subsidies, it has implications for the VAT treatment of other ways of raising finance for business. A recent decision of the European Court – University of Cambridge v HMRC – seemed likely to add irrecoverable VAT to the cost of raising finance, whereas Frank A Smart & Son Ltd is a helpful authority against that. The Supreme Court clearly was not attracted to the idea that a business which raised finance to invest in making future VAT-able supplies should be unable to recover the VAT on its fund raising costs. It rejected HMRC’s position that because fund raising, viewed in isolation, is outside the scope of VAT one cannot “look through” it to the downstream, future taxable supplies.”

The judgement and case summary can be found on the UKSC website under the reference: [2019] UKSC 39.


Photo of David Small

David Small, Advocate