Revenue and Customs v Frank A Smart and Son Ltd: SC 29 Jul 2019

The question was whether a taxpayer can deduct as input tax the VAT which it has incurred in purchasing entitlements to an EU farm subsidy, the Single Farm Payment. The taxpayer had used those entitlements to annual subsidies over several years and intended to use money resulting from the receipt of those subsidies to fund its current and future business activities, which currently involve only taxable supplies.
Held: The appeal failed: ‘The recognition that fund-raising costs may, where the evidence permits, be treated as general overheads of a taxable person’s business means that the taxable person must be able to provide objective evidence to support the connection between the fund-raising transaction and its proposed economic activities. The taxpayer also needs to maintain adequate banking arrangements and records to vouch the later use of the funds so raised to demonstrate its entitlement to deduct and to retain the deduction, if investigated. As the CJEU recorded in Sveda (para 36) the taxpayer will have to repay input VAT if it does not use the input goods or services for the purposes of its economic activity. HMRC has power to charge VAT under regulation 3 of the Value Added Tax (Supply of Services) Order 1993 (SI 1993/1507), where a taxable person uses services supplied to it for its business for a purpose other than a business use, by treating that use as a supply of services in the course of its business. This may involve HMRC in more investigations than the CJEU envisaged in BLP (para 24). But this supervision of the subsequent use of the raised funds, with which the services were associated, seems to me to be an inevitable consequence of the CJEU’s interpretation of the PVD.’


Lord Reed, Deputy President

Lord Wilson

Lord Hodge

Lord Briggs

Lady Arden


[2019] UKSC 39, [2019] WLR 4849, 2019 GWD 23-374, [2020] 1 All ER 97, 2019 SLT 857, [2019] STI 1467, 2019 SCLR 959, [2019] STC 1549, [2019] BVC 37, [2019] 1 WLR 4849, UKSC 2018/0073


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Council Directive (EC) 2006/112/EC




CitedRompelman v Minister van Financien (Judgment) ECJ 14-Feb-1985
A trader who decided to acquire property for letting could claim repayment of VAT on the cost of a right to acquire a building which had not yet been constructed, let alone tenanted. . .
Appeal FromRevenue and Customs, Appeal By Against A Decision of The Upper Tribunal In An Appeal By Frank A Smart and Son Limited SCS 8-Dec-2017
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CitedSecurenta Gottinger Immobilienanlagen und Vermogensmanagement AG / legal successor of Gottinger Vermogensanlagen AG v Finanzamt Gottingen ECJ 13-Mar-2008
ECJ Sixth VAT Directive Taxable person simultaneously carrying out economic activities, taxable or exempt, and non-economic activities Right to deduct input VAT Expenditure connected with the issue of shares and . .
CitedBLP Group v Commissioners of Customs and Excise ECJ 6-Apr-1995
The use of taxable goods for an exempt transaction disallowed a claim against VAT input tax. The use in that provision of the words ‘for transactions’ shows that to give the right to deduct under paragraph 2, the goods or services in question must . .
CitedInvestrand BV v Staatssecretaris van Financien (Taxation) ECJ 8-Feb-2007
Europa Sixth VAT Directive Article 17(2) Right to deduct Costs related to advisory services obtained in the course of arbitration proceedings to establish the amount of a claim that forms part of a company’s . .
CitedKretztechnik AG v Finanzamt Linz ECJ 26-May-2005
Europa Sixth VAT Directive – Supplies for consideration – Share issue – Admission of a company to a stock exchange – Deductibility of VAT).
Kretztechnik’s objects were the development and sale of . .
CitedMohr v Finanzamt Bad Segeberg ECJ 29-Feb-1996
ECJ Articles 6(1) and 11(A)(1)(a) of the Sixth Council Directive (77/388/EEC) on the harmonization of the laws of the Member States relating to turnover taxes, in respect of the definition of a supply of services . .
CitedCibo Participations ECJ 27-Sep-2001
. .
CitedAbbey National Plc v Commissioners of Customs and Excise ECJ 22-Feb-2001
Where a part or whole of a business was sold as a going concern, not all the VAT on the expenses of the sale was to be set off against VAT. The entire amount of VAT could only be set off where the assets sold were sold as a properly identifiable . .
CitedMidland Bank plc v Customs and Excise Commissioners ECJ 8-Jun-2000
If there is a clear and direct link between the purchase of goods and their use in output transactions on which VAT was payable, input tax was deductible even if VAT was not deductible in respect of all the supplies. Where the link is indirect than . .
CitedIntercommunale voor Zeewaterontzilting v Belgium (Judgment) ECJ 29-Feb-1996
The principle that VAT was reclaimable on the cost of acquiring a right later to purchase land to be used for VATable trade was applied to allow deduction of VAT on the cost of a study undertaken by a company in order to decide whether to commence . .
CitedBelgische Staat v Ghent Coal Terminal (Judgment) ECJ 15-Jan-1998
Once a right of deduction had been exercised because the inputs were for the purpose of investment work intended to be used in connection with taxable transactions, the authorities may not claim repayment merely because the taxpayer has been unable . .
CitedRompelman and Rompelman-Van Deelen v Minister Van Financien ECJ 14-Feb-1985
The economic activities referred to in article 4(1) of the sixth directive on the harmonization of the laws of the member states relating to turnover taxes may consist in several consecutive transactions. The preparatory acts, such as the . .
CitedThe Chancellor, Masters and Scholars of The University of Cambridge ECJ 3-Jul-2019
Reference for a preliminary ruling – Value added tax (VAT) – Deduction of input tax – Management costs of an endowment fund that makes investments with the aim of financing the whole of the taxable person’s output transactions – Overheads . .
CitedRevenue and Customs v University of Cambridge CA 27-Mar-2018
The court decided to make a reference to the CJEU because it concluded that the correct approach to be taken to the issue of attribution was not acte clair. . .
CitedSveda UAB v Valstybine mokesciu inspekcija prie Lietuvos Respublikos finansu ministerijos ECJ 22-Oct-2015
ECJ Judgment – Reference for a preliminary ruling – VAT – Directive 2006/112/EC – Article 168 – Right of deduction – Deduction of input VAT on the acquisition or production of capital goods – Recreational path . .
CitedLennartz v Finanzamt Munchen III ECJ 11-Jul-1991
(Judgment) Article 20(2) of the Sixth Directive, which concerns adjustments to the deductions of value added tax initially made in respect of capital goods, does no more than establish the procedure for calculating the adjustments to the initial . .
CitedKlub OOD (Vat) v Direktor Na Direktsia ECJ 22-Mar-2012
ECJ VAT – Directive 2006/112/EC – Article 168 – Right of deduction – Origin of the right of deduction – Right of a company to deduct the input VAT paid for the acquisition of capital goods not yet brought into . .
CitedEON Aset Menidjmunt OOD v Direktor na Direktsia ‘Obzhalvane i upravlenie na izpalnenieto’ – Varna pri Tsentralno upravlenie na Natsionalnata agentsia za prihodite ECJ 16-Feb-2012
ECJ VAT – Directive 2006/112/EC – Articles 168 and 176 – Right of deduction – Condition relating to use of goods and services for the purposes of taxed transactions – Origin of the right to deduct – Motor vehicle . .
CitedSkatteverket v AB SKF (Taxation) ECJ 29-Oct-2009
Sixth VAT Directive Articles 2, 4, 13B(d)(5) and 17 Directive 2006/112/EC Articles 2, 9, 135(1)(f) and 168 Disposal by a parent company of a subsidiary and of its holding in a controlled company Scope of VAT Exemption Supplies of services acquired . .
CitedWellcome Trust Ltd v Commissioners of Customs and Excise ECJ 10-Jul-1996
It was because the purchase and sale of shares by a charitable trust was not an economic activity that the VAT paid on the fees for professional services relating to those transactions were not recoverable; there was no downstream economic activity . .
CitedSkatteverket v AB SKF (Taxation) ECJ 12-Feb-2009
Europa VAT Interpretation of Articles 2, 4, 13B(d)(5) and 17 of the Sixth Directive, and of Articles 2, 9, 135(1)(f), 168 and 169 of Directive 2006/112/EC Disposal by a parent company of shares in a subsidiary . .
CitedVereniging Noordelijke Land- En Tuinbouw Organisatie ECJ 22-Dec-2008
Europa (Taxation) Articles 6 (2), first subparagraph, and 17 of the Sixth VAT Directive Goods and services used partly for the needs of the undertaking and partly for non-economic activities Concept of’ . .
CitedHausgemeinschaft Jorg und Stefanie Wollny v Finanzamt Landshut ECJ 14-Sep-2006
Europa Sixth VAT Directive – Article 11A(1)(c) – Use of property forming part of the assets of a business for private purposes by a taxable person – Treatment of that use as a supply of services for consideration . .
CitedUudenkaupungin Kaupunki (Taxation) ECJ 30-Mar-2006
Europa VAT – Deduction of input tax – Capital goods – Immovable property – Adjustment of deductions. . .
Lists of cited by and citing cases may be incomplete.

VAT, European, Agriculture

Updated: 18 April 2022; Ref: scu.640087