More than grazing: What McFarland v HMRC teaches us about UK VAT and single vs multiple supplies

Determining whether a transaction is a single supply or multiple supplies remains one of the more complex areas of UK VAT, with the issue regularly appearing before the courts. In our previous article on single and multiple supplies, we explored the key principles and the practical importance for businesses.

This article examines how those principles were applied by the First-tier Tribunal in Alan and Diane McFarland v HMRC [2026] TC09799. While the case concerned a cattle accommodation arrangement within the agricultural sector, the Tribunal’s findings provide valuable insight for any business supplying bundled goods and/or services, particularly where different VAT liabilities could apply to individual elements of the transaction.

Alan and Diane McFarland (McFarland) operated a 'bed and breakfast' arrangement for cattle, providing a package of services that included:

• housing and accommodation
• feed
• daily husbandry and management services.

Since 2014, McFarland treated these elements as separate supplies for VAT purposes, including an exempt supply of accommodation and a zero-rated supply of animal feed. HMRC disagreed with this treatment, arguing that the elements formed a single composite supply of ‘looking after animals’, taxable at the standard rate of VAT (20%).

McFarland also argued that HMRC should be prevented from changing the VAT position it had adopted; contending that HMRC had previously reviewed the arrangements during earlier inspections and audits without challenging the VAT treatment, creating a legitimate expectation that the approach was correct. McFarland further argued that the treatment reflected a long-standing industry practice.

McFarland also sought to rely on the principle of estoppel by convention[RJ1.1]. This is a legal rule that stops someone from changing their position when both parties to a transaction have shared the same understanding and acted on that basis for a long period of time. McFarland argued that it and HMRC had both accepted the same VAT treatment for many years and had acted accordingly. McFarland claimed that HMRC should not later be able to argue that the transactions were a single standard-rated supply and assess additional VAT.

The tribunal looked at the commercial reality of the arrangement rather than the labels used by the parties. Customers were purchasing an overall cattle management and care package, with use of the land forming only one element. The arrangement involved a single price and a single invoice, with the description on that being just ‘rental’.

Applying the principles in Levob Verzekeringen BV (C-41/04), the tribunal concluded that the various elements formed a single, indivisible supply and that separating them, as McFarland had done, would be artificial. To support this, they noted that as customers had no right to occupy the land, the supply could not qualify for the VAT exemption that could apply to such supplies.

The tribunal also rejected the arguments of legitimate expectation and estoppel by convention. HMRC had not made any clear or unequivocal representations regarding the VAT treatment during the past, which Mr McFarland acknowledged[RJ2.1][VA2.2]. Given this acknowledgement, it is surprising that the argument of legitimate expectation was taken forward. The tribunal also found that there was no shared understanding between McFarland and HMRC regarding the VAT treatment, so the estoppel argument could not succeed.

The case highlights the importance of looking at the commercial reality of a transaction, rather than simply the labels used to describe the supplies provided.

It emphasises that:

• a supply can only qualify as an exempt supply of land where the customer receives genuine rights of occupation
• integrated services may be treated as a single composite supply where the elements are closely linked
• legitimate expectation and estoppel by convention remain difficult arguments to sustain without clear assurances or a shared assumption between the parties.

The distinction between single and multiple supplies arises across many sectors, including food as covered in our article on the KFC dip dots case recently in the case of Tapi Carpets Limited v HMRC. Here, HMRC argued that flooring sales and independent fitting services constituted a single composite supply. However, the Tribunal disagreed and found against HMRC. It will likely remain an area that HMRC look to review given the subjective nature of each case.

1. Commercial reality takes precedence: contractual wording is important but not determinative. What is important is the overall substance of the arrangement.
2. Consider the customer’s perspective: what are they paying for?
3. Exempt land treatment is narrowly interpreted and generally requires the customer to have genuine rights of occupation. 
4. Bundling services can carry a VAT risk. Where multiple elements are supplied together, businesses should periodically review whether these constitute single or multiple supplies.  
5. Documentation is important; invoices, agreements and operational processes should support the VAT treatment applied.

McFarland is another reminder that determining whether a transaction comprises a single or multiple supply is not simply a box-ticking exercise. The tribunal focused on the economic reality of the arrangement and what the customers were actually receiving when concluding that the package should be treated as a single taxable supply.

Although the case arose within the farming sector, the principles have wider relevance for businesses supplying integrated goods and/or services. The frequency of cases being tested at tribunal on the single vs multiple supplies issue highlights the importance of regularly reviewing bundled offerings to ensure the correct VAT treatment is applied and remains appropriate as commercial arrangements evolve.

For further information on the above, please get in touch with your usual Crowe contact.