Supreme Petfoods Ltd v Revenue & Customs [2011] UKFTT 19 (TC) (21 January 2011)

DECISION

1. Supreme Petfoods Limited (“the Appellant”) appeals against a decision on review by Mrs. G.M. Hodgson, Appeals and Reviews Officer of the Respondents (“HMRC”), to refuse two claims for repayment of VAT referable to the periods 1 July 2001 to 31 December 2005 and 1 January 2006 to 31 December 2008 respectively. The repayment claims were for £25,232.83 and £48,570.70 respectively. Officer Hodgson’s decision was contained in her letter to Whittle & Co., on behalf of the Appellant, dated 12 November 2009.

2. The repayment claims had originally been submitted by the Appellant by a letter dated 30 March 2009, which explained that the Appellant’s supplies of ferret food had historically been standard rated but that the Appellant was now of opinion that these supplies should have been zero-rated.

3. The basis for the repayment claims was that the supplies had been supplies of animal feeding stuffs, which ought to have been zero-rated pursuant to general item 2 of Group 1 of Schedule 8 to the VAT Act 1994 (“VATA”) and not excepted from zero-rating by item 6 of the excepted items of the Group, which excepts from zero-rating: “Pet foods, canned, packaged or prepared; …”.

4. The supplies had historically been standard rated on the basis that they were supplies of ‘pet foods, canned, packaged or prepared’. As already indicated, the repayment claims were made on the basis that this treatment had been mistaken. It was common ground that the supplies of ferret food were supplies of animal feeding stuffs and that the ferret food supplied was ‘packaged’. Therefore the only point in dispute in the appeal was whether or not the Appellant’s supplies of ferret food were supplies of ‘pet foods’. Thus the question for the Tribunal is whether ferret food is pet food, or, put simply, whether for VAT purposes ferrets are pets.

5. We heard evidence from Mr. Christopher Childs, the managing director of the Appellant, and Mr. Andrew Davies, who works for the Appellant and keeps ferrets. We were also provided with a bundle of documentary evidence.

6. We set out the relevant evidence below.

The Evidence

7. The Appellant’s ferret food product was marketed as “Frankie Ferret” until September 2007 and thereafter as “Selective Ferret”. The ingredients of the two products are similar, but not the same.

8. The “Frankie Ferret” packaging included the statement that “Frankie Ferret is a complete and nutritionally balanced ferret food, formulated to satisfy the high energy requirements of ferrets at all lifestages”.

9. The “Selective Ferret” packaging included the statement that: “Supreme science Selective Ferret is created from a blend of high quality ingredients, formulated to provide a nutritionally complete and balanced diet. Selective Ferret guarantees your animal will get all the protein, oils, vitamins and minerals it needs in every nugget; ensuring the health and well-being of your ferret.”

10. Neither the “Frankie Ferret” packaging, nor the “Selective Ferret” packaging makes any reference to ferrets being pets.

11. Virtually all sales of the product by the Appellant are to wholesalers.

12. In the Appellant’s List of Documents it is stated that the Appellant intended to rely on a Witness Statement made in April 2010 by Ian Kearns, Chief Executive of The Ferret Education and Research Trust. In a letter dated 2 November 2009 sent by Whittle & Co. on behalf of the Appellant, to HMRC it was stated as follows:

“We have attempted to ascertain the number of ferrets kept in the UK but as their ownership is unregulated, unlike most farm animals, and as there is no requirement to register ownership, it has proved difficult to come to any firm conclusion. The British Ferret Club are of the opinion that the great majority of ferrets are kept for rabbiting as working ferrets. The Ferret Education and Research Trust estimate that there are over 1 million ferrets in the UK of which a substantial proportion are working ferrets. We would point out that working dogs form probably only 10% of the total dog population in the UK and if sale of food for working dogs can be zero-rated then the same should apply to working ferrets.”

13. The Appellant intended to produce evidence from Mr. Kearns, but was unable to do so. No evidence, either oral or via a Witness Statement was provided to the Tribunal by Mr. Kearns or any representative of the British Ferret Club.

14. What was provided to the Tribunal was a document giving details of a Self-Completion Survey completed by James Wellbeloved (a competitor of the Appellant) and the Ferret Education and Research Trust between April and August 2009, of ferret ownership in the UK. The document is entitled ‘Ferret Census Results 2009’.

15. It is noted in the document that the Ferret Education and Research Trust is a charity promoting the care and welfare of the domesticated ferret. Also, the respondents to the survey completed it either online or via a paper questionnaire inside selected packs of James Wellbeloved Complete Ferret Food. Further, the document recognised in terms that because the survey was a ‘self-selection survey’ and respondents were invited to take part via certain channels (as explained above) this may have excluded some ferret owners and may mean that the survey was not fully representative.

16. It appears from this document that 1,386 ferret owners responded to the survey, which asked 15 questions as follows:

i. How many ferrets do you currently own?

ii. How many male/female ferrets do you own?

iii. How long have you kept ferrets?

iv. Did you rehome your ferrets from a welfare or rescue centre?

v. Of your total number of ferrets, how many are used for each of the following purposes – working, companionship, both?

vi. Are your ferrets neutered, intact or vasectomised?

vii. What colourings do your ferrets have?

viii. Are your ferrets generally kept inside or outside?

ix. Are your ferrets generally bedded on – commercial made washable fabric, straw, paper, other?

x. How are your ferrets fed?

xi. Which ferret biscuit brand or brands do you use?

xii. Are your ferrets seen by a vet for regular annual check-ups?

xiii. Are your ferrets registered with a vet for emergency treatment?

xiv. Are your ferrets microchipped?

xv. Are your ferrets vaccinated against distemper and/or rabies?

17. Of these questions, the most relevant for the Tribunal’s purposes is question (v). The survey notes include the warning that the sampling error is normally +/- 2.6% at the 95% confidence level, that is, that the chances are 95% that the true figure is in the range of +/- 2.6% around the percentage figure given by the survey.

18. In answer to question (v), 82% of the sample of 1,386 respondents said that none of their ferrets were used (solely) for ‘working’. By contrast, only 22% of the respondents said that none of their ferrets were used (solely) as a companion. 81% of the respondents said that none of their ferrets were used both for working and as a companion. The survey report states that ‘most owners use their ferrets as a companion, with about 2 in 10 using them for both companion and working’.

19. The other relevant results were that 18% of respondents said that one or more of their ferrets were used (solely) for working, whereas 79% of respondents said that one or more of their ferrets were used (solely) as a companion.

20. Two ferrets was the number of ferrets most commonly owned, according to the responses to the survey. Almost a third (31%) of respondents said they owned two ferrets with the other respondents owning one ferrets or between 3 and ‘over 30’ ferrets. Lest this information should mislead, we add that only 2% of respondents said they owned over 30 ferrets, the highest single number owned which was reported was 160 ferrets. Most respondents had kept ferrets for many years; only 16% said they had kept them for less than one year. 54% of respondents said that their ferrets were kept outside.

21. 59% of respondents said that they fed their ferrets a mixed diet, we assume of biscuit and raw meat. 41% said that they fed their ferrets entirely on biscuit, whereas 2% said they fed their ferrets entirely on raw meat. Most of the respondents (85%) said they used James Wellbeloved branded biscuits, while 10% are reported as saying they used ‘Frankie Ferret’.

22. The demographic analysis of the responses was that the most (27%) came from the South East, followed by 15% from the West Midlands, 13% from the South West and 12% from the North West. The majority (67%) of the respondents were either married or living together and 61% of the respondents were female as against 39% who were male.

23. Mr. Childs suggested that the nature of the survey meant that the ‘Ferret Census Results 2009’ were likely to be weighted by responses from pet ferret owners (users of James Wellbeloved’s products) and, in particular, that commercial organisations using ferrets as working ferrets would have been unlikely to respond to the survey. He quarrelled with the proposition that the overwhelming majority of ferrets kept in the UK are kept as pets.

24. He accepted that the website of the Appellant was particularly directed to those ferret owners who did keep their ferrets as pets. The website page in the Tribunal’s bundle contained the following narrative:

‘Every Supreme pet food has been comprehensively researched to make sure it provides exactly the right diet for your pet. As a result, Supreme Petfoods provides pet owners with a unique range of pet diets that cover rabbits, guinea pigs, chinchillas, degus, hamsters, gerbils, rats, mice and ferrets.’

25. Ferret snacks and accessories, also aimed at pet ferrets, were also offered on the website, but Mr. Childs commented that the site had not been updated since 2007 and that there had not been much take-up of these products.

26. Mr. Andrew Davies exhibited a ferret (he has two, but at one time kept 10) at the Tribunal hearing. He said that he had kept ferrets at varying intervals since childhood and he has always used them as working ferrets catching wild rabbits. He has always fed his ferrets on prepared foods offering high protein. He said that he knew many people who use ferrets to control rabbit populations. He keeps the ferrets outside, commenting that they can stink, being members of the same family as skunks.

27. HMRC produced a VAT Notice 701/15 on ‘Animals and Animal Food’ dated March 2002. In the Notice, HMRC states its position that ‘animal food specially prepared for a pet species or canned or packaged as pet food, or held out for sale as pet food’ is standard-rated (paragraph 6.1) and ferrets, as well as ‘dogs (except working dogs)’ are included in the list of pet species (paragraph 6.2). Paragraph 6.4 explains HMRC’s position on food for working dogs, which is:

A product which is claimed as being suitable for all breeds, size and age of dog is standard-rated.

If a specially formulated food is held out for sale exclusively for working dogs it will come within the scope of the VAT relief – unless it is biscuit or meal.

The expression ‘working dogs’ covers working sheep dogs of any breed, dogs trained and used as gun dogs and racing greyhounds.

28. The March 2002 version of Notice 701/15 replaced the June 1995 version of the Notice. The June 1995 version was also with our papers, together with some relevant preliminary correspondence relating to it. Section III of the June 1995 version of the notice, headed ‘Pet food, wild bird food and food for cats and dogs’ carried the statement that ‘The contents of this Section have been agreed with the Pet Trade and Industry Association (PTIA)’.

29. Section III of the June 1995 version of the Notice included the statement that ‘ferrets’ and ‘dogs (except racing greyhounds)’ were ‘considered to be pets for VAT purposes’ and that ‘canned, packaged or prepared food held out for sale for feeding them is always standard-rated’. The additional exclusion from standard-rating as pet food for ‘food for working dogs’ was added to the Notice on an update in October 1998.

30. The preliminary correspondence with our papers shows that on 9 March 1995 the Pet Trade and Industry Association put forward to a Mr. P. Grimwood (apparently of HM Customs & Excise) points for consideration on the draft Notice, preparatory to a meeting. Among the points put forward was:

‘Pet species – are ferrets to be classified as pets or as other species’

31. We were also shown a copy of a letter dated 26 April 1995 from the Pet Trade and Industry Association to Frances Williams of HM Customs & Excise referring to the new VAT Notice 701/15 and stating as follows:

‘We have now studied the revised draft which incorporates the comments we made at our recent meeting.

We see no need for any further amendments and would like to thank you and your colleagues for your understanding during our discussions. We are convinced that the new notice will remove the ambiguity which was in the text of 801/25/86 and which caused so many problems in the past.

PTIA will be pleased to have its name included at the Head of Part III.’

32. This evidence clearly shows that the Pet Trade and Industry Association in 1995 considered the question of whether ferrets were or should be classed as pets for VAT purposes and was content that they were so classed. Mr. Whittle pointed out that the Pet Trade and Industry Association represents the pet food industry, not the animal feedstuffs industry, and also that another organisation consulted, the Pet Food Manufacturers’ Association, did not lend its name to the published Notice. We note in addition that HMRC had not been able to find correspondence or notes of meetings with any other relevant representative bodies and it appears that H.M. Customs & Excise did not consult with the animal feed industry on the point. The latest version of VAT Notice 701/15 dated March 2002 does not (unlike the June 1995 version) contain any reference the content of the relevant part having been agreed by the Pet Trade and Industry Association.

The Submissions

33. That being the evidence, the Appellant’s submission was that working ferrets, kept for purposes of rabbit-control or other commercial activities, such as assisting with the laying of electrical cables in narrow conduits, were not pets. The Appellant’s products were not held out as being primarily intended for pets. The supplies therefore were of animal feeding stuffs, not being pet food. The Tribunal case of Popes Lane Pet Food Supplies Limited v Commissioners of Customs and Excise [1986] VATTR 221 was relied on.

34. The facts in Popes Lane Pet Food Supplies were that the appellant operated a licensed slaughterhouse at its premises. Raw meat was produced for supply. Some of it was supplied in its raw state, some of it was sterilised and then refrigerated before supply, and some of it was cut up into smaller pieces or minced according to customers’ requirements. In no case was any label attached to the product describing its nature or intended use. The Tribunal held that the only supplies made by the appellant which fell to be treated as supplies of pet food were supplies of foodstuffs which were expressly made up and offered by the appellant as pet foods. On the evidence there seemed to the tribunal to have been very few of such sales.

35. Mr. Anderson, for HMRC, submits that food intended for a species which it designates as a ‘pet species’ – including ferrets – is standard rated as pet food. He also submits that food intended for a species which it does not designate as a ‘pet species’ will be zero-rated, unless there is evidence that the supply of it is intended for pets. Mr. Anderson acknowledges that there is no statutory support for this approach generally, or for a distinction between pets which are animals, and other animals, based upon the species of animal for which the food is intended.

36. He submitted that the working definition of pets adopted by the Tribunal in Popes Lane Pet Food Supplies, viz: ‘animals kept primarily as an object of affection [including] an animal kept primarily for ornament’ should be used for the purposes of the appeal.

37. Mr. Anderson made the point that the intention of the seller, not the purchaser is determinative of the question of whether food supplied is intended for feeding a pet. But the evidence establishing that a supply is intended for feeding a pet must be objective evidence derived from the way it is held out for sale – see: P A Peters & K P Riddles t/a Mill Lane Farm Shop v Commissioners of Customs & Excise (VAT Tribunal Decision No. 12937).

38. He submitted on the basis of Popes Lane Pet Food Supplies that in a case where an animal might conceivably be kept for more than one purpose, it is the primary purpose which determines the status of the animal as a pet or otherwise for VAT purposes.

39. He relied on Stichting Uitvoering Financiële Acties v Staatssecretaris van Financiën (Case C– 348/87) for the proposition that exceptions to the rule that VAT is due on supplies for consideration by taxable persons should be construed strictly. We accept this proposition, but add the rider that a strict construction is not a restricted construction (Expert Witness Institute v Customs and Excise Commissioners [2002] STC 42 (CA) at [16]).

40. He also reminded us that the Court of Appeal in Commissioners for HMRC v Procter & Gamble UK [2009] EWCA Civ 407 had made the point that the classification of goods for the purposes of Group 1 of Schedule 8, VATA involves short practical questions calling for short practical answers rather than elaborate analysis.

41. He submitted that the Appellant bore the burden of showing that its supplies fall within the general, rather than the excepted, items to Group 1 of Schedule 8, VATA (see: Kalron Foods Limited v Commissioners for HMRC [2007] All ER (D) 507 (Mar). We also accept this proposition on the basis that the status of ferrets as being (or not being) pets is a matter of fact. The burden is on the Appellant to prove the facts on which it relies to make its case.

42. Mr. Anderson submits that the Appellant has failed to prove either that ferrets are not pets, or that any significant number of ferrets are kept otherwise than as pets, so as to be able to support its proposition that its supplies of ferret food (which make no reference to an intention for the product to be used for feeding pets) are not supplies of pet food.

43. This would require, in his submission, that the Appellant shows that a majority of ferrets were primarily kept otherwise than as pets, or at the least a demonstration by the Appellant of the existence of a population of working ferrets that is more than de minimis. He submitted that the evidence did not establish either proposition of fact; indeed the evidence of the Ferret Census Results 2009 showed that the population of ferrets kept otherwise than as pets was de minimis.

44. He contended that it was clearly not self-evident that ferrets are kept otherwise than as pets. He referred to the fact that the Commissioners (then Customs and Excise) had first published their opinion that ferrets were de facto pets in 1996 and that this opinion has not been challenged by any other manufacturer in the ensuing 14 years.

Discussion and Decision

45. The Appellant accepts that there are (at any rate some) ferrets kept as pets in the UK. This is clearly correct. Mr. Whittle’s argument, as we understand it, that all the Appellant’s supplies should be zero-rated is not put on the basis that no ferrets are pets. It is put on the basis that (1) ferrets are not generally a pet species and (2) the Appellant’s packaging makes no reference to its ferret food being intended for feeding pet ferrets, which leads to the result that all its supplies should be zero-rated. Mr. Whittle also argues that the Appellant’s supplies for feeding ferrets which are not pets (working ferrets) should be zero-rated by analogy with HMRC’s treatment (zero-rating) of supplies of feeding stuffs for working dogs.

46. From the evidence as a whole we conclude that the Appellant has not proved that the general classification of ferrets as a pet species is incorrect. We accept therefore (and find as a fact) that ferrets can be classified generally as a pet species. From the objective evidence we conclude (and find as a fact) that food held out for feeding ferrets generally is pet food, because ferrets generally are pets. The position is, apparently, different for rabbit food because HMRC appears to accept – though we make no finding on the point – that rabbits generally are not pets.

47. We bear in mind the limitations of the evidence, particularly the Ferret Census Results 2009, which have been pointed out in submissions by the Appellant and the limitations that are pointed out in the document itself. Nonetheless we accept the Ferret Census Results 2009 as having evidential value and conclude (and find as a fact) that only a quite small minority of ferrets in the UK considered overall (30% or less) are kept as working ferrets or otherwise than as pets. We add that we think it probable that the percentage of ferrets kept as working ferrets varies according to the part of the country being considered.

48. We accept that the packaging of the Appellant’s ferret food products contains no indication that they are intended for feeding pet ferrets, as opposed to working ferrets.

49. Nonetheless we consider that the Appellant’s reliance on Popes Lane Pet Food Supplies is misconceived because the supplies in that case were by their nature evidently not intended for feeding pets, except in the cases where they were expressly made up and offered by that appellant as pet food. The facts here are different. As far as we can see (and we so find) the Appellant’s products are not such that by their nature they are evidently not intended for feeding pet ferrets. On the contrary we find that they are eminently suitable for feeding pet ferrets. This is confirmed by the extract from the Appellant’s website page which we set out in paragraph 24 above.

50. Further, the analogy which the Appellant seeks to draw with HMRC’s position on food for working dogs, as set out in paragraph 27 above, breaks down because the Appellant’s product is suitable for all ferrets (pet ferrets and working ferrets). Furthermore it is not held out for sale as suitable exclusively for feeding working ferrets.

51. The intention of the person making the supply (the Appellant), established by objective evidence, as to whether the food supplied is for feeding pet ferrets, working ferrets, or ferrets generally, is relevant for classifying the supply. The use which any purchaser or class of purchasers makes of the product – particularly where the class of purchasers concerned is a minority of all purchasers – is not relevant. We conclude (and find) that the Appellant’s intention is that the ferret food supplied by it is to be fed to ferrets generally. The fact that some purchasers (as we find, a minority) use the Appellant’s products to feed working ferrets is irrelevant. The point is the same as that made by the Chairman in the Popes Lane Pet Food Supplies case, where he said:

‘If a man goes into a grocer’s shop and buys a tin of corned beef, saying that he wants it for his dog, in my judgment the grocer is supplying (in the words of general item 1 of Group 1) food of a kind used for human consumption, and he is not supplying pet food or even animal feeding stuffs. Equally if a man goes into the same shop and buys a tin of a popular brand of cat food, saying that he wants to lay it as bait for rats, in my judgment the grocer is supplying pet food.’

52. In the result, because we have held that ferrets generally are a pet species, we hold that the Appellant’s supplies have been of pet food and that they were correctly standard-rated. The appeal is therefore dismissed. Subsidiary points raised by the Appellant in relation to the time limits applicable to supplies which are the subject of the appeal, and payment of compound interest on VAT falling to be repaid, do not therefore arise.

Right to apply for permission to appeal

53. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

JOHN WALTERS QC

JUDGE OF THE FIRST-TIER TRIBUNAL

RELEASE DATE:21 December 2010

First-tier Tribunal (Tax)

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS (Value Added Tax) Respondents

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