The Upper Tribunal’s decision in Queenscourt Ltd v HMRC [2026] UKUT 195 (TCC) imposes a clearer divide between composite and mixed supplies at a transactional level. That divide enables a more structured application of established principles, but in ways that may not always align with economic and commercial reality. The decision limits both HMRC’s and taxpayers’ ability to aggregate or disaggregate elements within a mixed supply. Businesses will need to review existing accounting treatment for potential exposures or claims and consider whether impacted supplies should be restructured.

Overview

The decision in Queenscourt Ltd v HMRC [2026] UKUT 195 (TCC) addresses a point not clearly resolved in the authorities.

Case law derived from Card Protection Plan (“CPP”) and Levob establishes when separate elements are treated as a single composite supply, or alternatively as multiple independent supplies within a single transaction.

What Queenscourt considers is whether, within a mixed supply, a sub‑set of elements can itself be treated as a composite supply — losing its individual VAT identity while other elements remain separate.

Although the facts concerned dip pots supplied with KFC meal deals, the decision is of broader significance for the VAT treatment of complex, multi‑element supplies.

Background

Queenscourt operated KFC franchises and supplied meal deals comprising hot food (standard‑rated) together with other items, including dips (zero‑rated if supplied on their own).

HMRC initially accepted a claim that VAT had been over‑accounted for but later sought to recover the amounts repaid, arguing that dips formed part of a single standard‑rated supply of hot food.

The First‑tier Tribunal accepted HMRC’s position, concluding that elements within a transaction could be selectively grouped as a composite supply, even if other elements were treated separately.

The appeal

The appeal raised a fundamental structural question:

In a transaction comprising multiple elements which is not a single composite supply, can subsets of those elements be treated as composite supplies, with the remainder analysed separately?

HMRC’s position (accepted by the FTT) was that such an approach was permissible. Queenscourt argued that the composite supply analysis operates only at the level of the transaction as a whole.

The Upper Tribunal’s decision

The Upper Tribunal rejected the FTT’s approach.

It reaffirmed the orthodox principle derived from CPP and subsequent case law that every supply (including each element which would constitute a supply if provided on its own) is to be treated as distinct and independent, unless a recognised exception applies.

Those exceptions are limited to:

• a single composite supply under the principal/ancillary test (CPP); or
• a single indivisible economic supply (Levob).

Rejection of “sub‑bundling”

The central conclusion is that these exceptions operate only at the level of the transaction as a whole.

The Tribunal held that the FTT erred in law in treating selected elements within a broader transaction as a composite supply.

Instead:

• either the transaction is a single composite supply, in which case all elements are absorbed into that supply; or
• it is a multiple supply, in which case each element is analysed separately.

There is no intermediate category permitting aggregation of selected elements or the application of the principal/ancillary test below the level of the overall transaction.

Application of CPP and Levob

In reaching that conclusion, the Tribunal emphasised that:

• CPP is concerned with determining whether a transaction comprises one or more supplies;
• the principal/ancillary framework assumes that all elements are drawn into a single supply if the test is satisfied;
• the case law does not support applying that analysis piecemeal within a broader transaction.

The flexibility recognised in CPP goes to how the question is answered, not to redefining the question itself.

Public law and legitimate expectation

The Upper Tribunal also considered the scope of the FTT’s jurisdiction to entertain public law arguments.

It endorsed the approach in MWL International Ltd, holding that jurisdiction must be determined by purposive construction of the relevant statutory provisions, rather than by any presumption in favour of public law arguments.

Against that background, the Tribunal was critical of Zeman, rejecting the analogy between tax appeals and enforcement proceedings. It held that the FTT erred in following Zeman without undertaking a proper statutory analysis.

However, as the taxpayer succeeded on the VAT issue, the Tribunal declined to determine whether the FTT in fact has jurisdiction to consider legitimate expectation arguments. That question was left for future cases.

A further argument based on “good administration” was rejected. The Tribunal confirmed that HMRC is not required to adhere to an incorrect position in all circumstances. The relevant question is whether there is “outrageous unfairness”, assessed by balancing fairness to the taxpayer against the public interest in correct tax collection.

Outcome

Once that framework was applied:

• it was common ground that the meal deal was not a single composite supply;
• each element had to be analysed separately;
• dip pots, being zero‑rated when supplied independently, remained separate zero‑rated supplies within the meal deal.

The Upper Tribunal set aside the FTT’s decision and allowed the appeal.