Pet or stock?

Eligibility for a second-hand goods scheme

The taxpayer traded in and sold puppies. About half were bought in from suppliers the rest were bred on the premises and the business usually had about 100 in total at any one time. The puppies were about eight weeks old when the taxpayer bought them. They were then given socialisation training and sold when between ten weeks and five months old. Prices ranged between £400 and £1 500 and the buyers were mostly private individuals.

The taxpayer accepted that it should account for output tax on the full selling price of puppies it had home-bred and those that it had bought from VAT-registered suppliers. But it considered that puppies bought from non-VAT-registered suppliers should be subject to VAT only on the profit made at resale. This was on the basis that these puppies constituted second-hand goods and were within the scope of...