Mr and Mrs Kelly, in partnership as KFM, provided financial advice. This was an exempt supply and KFM was not registered for VAT. In February 2002, the couple bought Ludbrook Manor, a substantial house with an annex formerly used as stables. They lived in the house, while Happy Holidays Ltd (HHL), of which Mr and Mrs Kelly were the only directors and shareholders, carried on the business of letting parts of the former stables to holidaymakers. These were standard-rated supplies.