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VAT is often regarded by farmers as being quite straightforward. However, this is often not the case due to the amount of diversification that now occurs. Whilst most sales in the past were zero rated it is now common for some of them to be standard rated or exempt. This can have implications for VAT.

Some of the standard rated sales such as contracting and B & B income are well known. B & B is often operated as a separate business but care is needed due to the ‘business splitting’ rules.  Some other items can have both standard rated and zero rated treatment depending on how the item is treated e.g. bedding straw is standard rated and feed straw is zero rated. There are numerous other supplies where the rate of VAT to be charged needs to be considered.

Where a farmer rents out their land then this would be an exempt supply and would have consequences for the amount of VAT that can be reclaimed. This is also relevant for farm buildings that are let for use as workshops etc. It can be the case that there are a mixture of supplies so that the ‘partial exemption’ rules apply.  These all add to a level of complexity that needs careful monitoring.

An option to tax election on the land and property can help with the recovery of VAT but this also has long term consequences which may outweigh the short-term benefit. This needs to be considered carefully before a decision is made.

Depending on the mix of sales, there can be occasions where the farm elects to apply the flat rate scheme that is available. This could arise where there are significant standard rated sales or where partial exemption calculations are required. Changes are being introduced to flat rate schemes from 1 April 2017 to rectify what HMRC calls in their technical note ‘Tackling Aggressive Abuse of the VAT flat rate scheme’. Whether this will apply depends on the particular facts that relate to the business.

A ‘DIY Housebuilders’ Scheme’ can be available for barn conversions in certain circumstances. The specific terms of the planning permission are an important consideration. It is therefore important to consider the precise conditions that apply at the commencement of the project to ensure that the claim is successful.

It can be seen that VAT is no longer straightforward. It is therefore essential to obtain professional advice on the VAT treatment that applies and we are able to help with this.