Babylon Farm Ltd v HMRC - [2021] UKUT 224 (TCC)

Hammad Baig appeared for the Appellant before the Upper Tax Tribunal (UTT) in Babylon Farm Ltd v HMRC [2021] UKUT 224 (TCC) (9 September 2021).

The Appellant first appealed to the First-Tier Tribunal (FtT) against two HMRC decisions dated 11 May 2018 which denied a claim against Babylon to recover input tax of £19,760.50 and reduced the Appellant’s claim for input tax to nil for the period of May 2014 to February 2018. HMRC denied the input tax credit on the basis that Babylon was not carrying on a business for VAT purposes in the period of May 2014 to May 2017. The Appellant also challenged HMRC’s decision to deregister the Appellant for VAT purposes on the basis that it was not carrying on a business.

The FtT held that HMRC were correct to disallow the input tax claimed by the Appellant as the Appellant was not operating as a business during the period of May 2014 to May 2017. The Appellant then appealed to the UTT.

The UTT considered two issues:

-          Whether the FtT had erred in holding that it was not necessary for HMRC to first cancel a taxpayer’s (the Appellant in this situation) registration for VAT before HMRC could deny the taxpayer credit for input tax.

-          Whether the FtT had erred in its approach to the applicable principles in determining whether the taxpayer was carrying on a business or economic activity.

The UTT found that the FtT had erred in its approach to applicable principles in determining whether the Appellant was carrying on a business or economic activity. The FtT had applied the principles set out in Customs and Excise Commissioners v Lord Fisher [1981] 2 All E.R. 147 as if it was an exhaustive checklist. There was a failure by the FtT to acknowledge or consider the changes in European and domestic case law as discussed in Wakefield College v HMRC [2018] EWCA Civ 952.

Applying the proper principles, the UTT found that taxpayer had not been carrying on an economic activity during the relevant period and that the appeal had to be dismissed.

HAMMAD BAIG © 2023

BARRISTER

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Mr Baig practices, international trade law, tax law and commercial litigation with a specific interest in VAT and Customs and Excise Law.

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