VAT

[littleacre]

could any one shed a bit of advice. we are hobby farmers but after investing in a lot of machinery etc we was advised to become vat registerd . this year i intend to bale hay and straw and either feed my cattle and the surplus sell to local horsey people. i also intend to bale there own grass for them so when i invoice for my services its very simple ill just add VAT . we recently applied and was accepted to be VAT reg and was asked would we be contributing or mainly claiming back. as it is a hobby / early days for a buisness we disclosed we would probably claim more than we pay as to produce anything normally entails paying VAT. but selling ie meat etc is zero rated. the VAT people now want to come and see us to discuss if we should be reg or not have i opened a can of worms ?? do i charge VAT on hay intended for horses ??

[Broomcroft]

Littleacre - It doesn't sound as though you should be VAT registered if you are a hobby, not a business. Although where does one become the other, pass? Years ago, it was based on expected turnover, which was something like £50,000 p.a. back then, 20 years ago maybe, haven't got a clue now what the rules are! Services provided should have VAT charge on them (if you are registered). Forage shouldn't have VAT on it (I THINK that applies to horses as well because how do you know what the hay is for when you sell it?).

We are a VAT reg farm and the only thing we would charge VAT on would be the sale of used equipment / vehicles and services. Meat sales etc are VAT free as are animals to the abattoir or market.

I'm not sure about VAT, but for income tax purposes, you have to make a profit (before charging depreciation) on your business within 6 years.

I hope I got that all right????? I'm not expert, just quoting what I remember, don't blame me if i got it wrong

[littleacre]

yes clive the thing between hobby and buisness is a very grey area . i bet if i make money ill have to pay income tax but because i want to claim back the vat it seems im not allowed. the only reason for going vat reg was it would make it all more viable to build into a buisness

[Rob R]

Make the most of the visit - they will answer any questions & give you up to date info. The threshold is about £70k now above which you must register & you must be a business (separate business accont etc) to register voluntarily.

[Jac]

I know of someone down here doing the same sort of thing. They told him that he couldn't possibly make a living out of farming and de-registered him for VAT. However, I know of other people who are definately not making a living out of farming who have been registered for years without any issues.

[Rob R]

You don't have to be making a living to be registered for VAT - I know plenty of part-time businesses that are VAT registered. There may have been other reasons they were deregistered, mind.

[littleacre]

had a visit today from the VAT people very nice and very helpfull. they will let us register even though farming is not our main income and we will be known as rebateable buisness. this means that farming is almost all zero rated what we sell ie food etc and what we pay out normally has vat incurred on it. ie services (vets, mechanics, butchering slaughtering etc etc} plant and machinery and equiptment and useables ie fertaliser baler string etc etc. i think this will make a differece to us and could even be the difference between success and failure. i also plan to do some contract bailing that is taxable at 20% and if i sell straw that is also taxable. as it could be deemed as bedding and not feed. however hay is zero rated . i must say although the tax man and vat people get a bad name they are actually there to help you know. and have been very helpfull in this instance

[Rob R]

According to my last butchers invoice slaughter and butchery is still zero-rated.

[Broomcroft]

That's good news littleacre. I agree with you, we have always found them helpful, farm inspectors as well.

You have to apportion quite a few VAT'able items. Your accountant should be able to provide you with figures. For example, we do 5/24th of electricity for the house is considered personal and we do not reclaim the VAT on that. In decimal, 5/24th is 0.208333333333333 (roughly) if that makes it easier . With heating oil for the house, we claim 1/6th of the VAT (or if you prefer 0.166666666666667 in decimal). Farmhouse maintenance/repairs we claim 70%, but improvements I don't think we can claim anything....not sure, not done any lately, too broke after years of farming .

Vehicle fuel is funny as well, you have three options from memory.

You probably know all this though. Just thought I'd mention it because it caught me out, especially the vehicle fuel VAT which is downright weird IMO.

[littleacre]

hi clive we will not be actually claiming for the house etc as our house is seperate from the holding. yes i agree that ive been told that i have to do lots of proportions. . weve been going a few years and was told by a (proper farmer) to see what the vat man said. very very helpfull we can even claim the vat back on anything purchased back to oct 2008. . it has been a bit awkward because farming is not my main buisness but the vat (lady in fact ) was very posative and could see that we are genuine and trying to build up a buisness for our two sons. just thought id post on here that being vat reg could be helpfull to other smallholders IM sure theres others who are in the same boat.

[Rob R]

I'll also add that being VAT registered also gives your business a sense of validity for customers & if you're applying for credit accounts with suppliers it can help then, too. Good luck with it all.