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Babylon Farm: VAT Treatment of Hay Making Activity

Hammad Baig appeared before the Upper Tribunal (Tax and Chancery Chambers) ("UT") to represent the Appellant, Babylon Farm Ltd. The full decision can be read here Babylon Farm Ltd v HMRC - [2021] UKUT 224 (TCC). He was instructed by Mr Noel Tyler of VATangles Consultancy.

The decision carries consequences for the farming industry.


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 recorded at 10 that HMRC’s conclusions were based on the principles set out by the High Court in Customs and Excise Commissioners v Lord Fisher [1981] STC 238 (“Lord Fisher”), which HMRC “regarded as setting out the six indicators that are to be used in assessing whether an activity is being carried on as a business”.

The FTT concluded in all of the circumstances of this case that the evidence and submissions established that the Appellant’s activities during the relevant period had been confined to haymaking and the sale of buildings and that these activities had not been conducted on a basis that followed sound and recognised business principles or on a basis that was predominantly concerned with the making of taxable supplies for consideration. As a consequence the Appellant was not operating as a business during the relevant period.

With permission from the FTT, the Appellant appealed to the UT.

The Appellant’s grounds of appeal at the UT

A. The Appellant's first ground of appeal was that the FTT erred in law in rejecting its argument that HMRC could not deny credit for input tax (on the basis that Babylon was not carrying on a business in the relevant period) without first cancelling Babylon’s registration for VAT.

B. The second ground related to deregistration on the basis that the Appellant was not deemed to be conducting economic activity. This ground was divided in to the following sub grounds.

(1) The FTT had failed to take into account Article 9(1) of the PVD;

(2) The correct approach to the interpretation of “business” is that set out in Wakefield College v HMRC [2018] EWCA Civ 952 (“Wakefield”);

(3) Even on a proper analysis of the Lord Fisher indicia, Babylon was carrying on a business; and

(4) The FTT erred in taking into account the number and scale of transactions in determining whether Babylon was carrying on an activity.

Appeal to the Upper Tribunal

The UT dismissed the first ground of appeal.

Whilst the UT agreed with Mr Baig that the FTT had incorrectly applied Lord Fisher and the correct approach was found in Wakefield College v HMRC [2018] EWCA Civ 952 (“Wakefield”). The UT found that it had erred in its approach to applicable principles in determining whether the Appellant was carrying on a business or economic activity. There was a failure by the FTT to acknowledge or consider the changes in European and domestic case law as discussed in Wakefield. However, applying the proper principles in Wakefield and the applicable EU law, the UT found that taxpayer had not been carrying on an economic activity during the relevant period and that the appeal had to be dismissed.

The UT stated that In determining whether a person is carrying on an economic activity (as Article 9 expresses it) or a business (as the VATA expresses it), the most useful guidance remains that given by the Court of Appeal in Wakefield. The Court’s analysis of certain of the leading CJEU authorities is particularly instructive given that, read in isolation, those authorities can be somewhat opaque. As the Court explained in Wakefield, the main issue of law in that case was the effect of the decision of the CJEU in Geemente Borsele v Staatssecretaris van 15 Financiën, Staatssecretaris van Financiën v Geemente Borsele (Case C-520/14) EU:C:2016:334, [2016] STC 1570 (“Borsele”) on earlier decisions, particularly the decision of the CJEU in European Commission v Finland (Case C-246/08) EU:C:2009:671, [2009] ECR I-10605 (“Finland”) and the decision of the Court of Appeal in HMRC v Longridge on the Thames [2016] EWCA Civ 930, [2016] STC 20 2362, [2017] 1 WLR 1497 (“Longridge”).

The UT was critical of HMRC's approach, in that, the UT stated at [49] that FTT’s approach is understandable given that notwithstanding that HMRC must have been aware of the decisions in Borsele, Finland, Wakefield and Longridge, 5 HMRC based its own analysis of whether Babylon was carrying on a business simply on the basis of the Lord Fisher criteria, and indeed submitted to the FTT that this was the correct approach.

The UT took into account the formulation of materiality expressed in Degorce, it stated at [53] that the FTT’s decision might have been different had it applied the correct legal test. The Court of Appeal in Longridge explained that, while the criteria in Lord Fisher had a role to play in addressing the existence of an economic activity, they could not displace the “direct link” test set out in the CJEU jurisprudence, which is materially different. Moreover, in its decision the FTT relied on its conclusion that Babylon failed two of the six Lord Fisher criteria, one of which was the “predominant concern” test, which Morgan J in Longridge described as having become unhelpful and potentially misleading. The error of law was therefore material and the UT set aside the FTT's decision insofar as it related to this point.

Towards the end of the hearing submissions were invited by the UT on the issue of whether sending the matter back to the FTT or if the parties were content for the UT to remake the decision. The Appellant indicated that in the interest of saving costs, it would prudent for the UT to remake the decision, HMRC agreed with this submission.

The UT remade the decision, applying the two-stage approach set out in Borsele and endorsed in Wakefield, the first stage is to ask whether, in relation to the relevant period, Babylon made a supply of goods or services for consideration within the meaning of Article 2 of the PVD. HMRC accept that this condition was satisfied.

Tax Disputes Upper Tribunal Tax Tribunal HMRC Disputes
VAT Farming Activity Babylon Farm Hammad Baig London Tax Barrister

Turning to whether or not Babylon was carrying on an economic activity during the relevant period the UT stated that whilst the Lord Fisher criteria “have a role to play” , the more appropriate starting point is to consider whether Babylon’s supplies were made for the purposes of obtaining income therefrom on a continuing basis. This is an entirely objective enquiry. Another way of expressing the question is to ask whether there was a "direct link" between the services supplied by Babylon and the payment it received for them.

HMRC agreed that the the Appellant's haymaking activity was regular and was continuing. The question for the UT to was determine whether there was a direct link between Babylon’s supplies and the price it received for them, such that the activity was “carried out for the purposes of obtaining income therefrom”. On the facts found by FTT, the UT concluded that the Appellant was not carrying out economic activity.



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

Further articles on topics relating to Mr Baig's practice areas, can be read under his Insights, and on Mr Baig’s blog. Should you wish to instruct Mr Baig, then please do not hesitate to contact his clerk Mark Byrne.

NOTICE: This article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Chambers or by Chambers as a whole.


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