The world of VAT can be quite complex especially when it comes to our industry, as a firm of accountants that specialise in agriculture we often get asked about VAT issues specific to farming. I thought I would share a few of these with you.
Can I claim VAT back on a car/landrover used for farm business purposes?
VAT cannot be reclaimed on the purchase of a car, but can be claimed on a commercial vehicle. Generally speaking a land rover discovery/range rover is classed as a car and VAT cannot be recovered, but a commercial defender type is not a car and 100% of the VAT can generally be claimed back.
Double cab pickups are considered as commercial vehicles as long as they have a payload of at least one tonne and as such VAT should be recoverable as above. However it states in HMRC’s manual that an Inspector “should look more closely at those types of commercial vehicle that are suitable for private use and especially at those vehicles; e.g. motor caravans, motorcycles and double cabs (which although not ‘cars’ for VAT purposes are often marketed as dual-purpose commercial/‘lifestyle’ vehicles)”. As such if there is more than incidental private use made of such vehicles the input VAT recovery should be apportioned.
Can I claim VAT back on farmhouse repairs?
This is a difficult area as the farmhouse is obviously used for personal purposes as well as business, it would prove very difficult to calculate an accurate personal/business element split.
HMRC have agreed that between 40% and 70% of the VAT can be reclaimed on farmhouse repairs, 70% maximum for a full time farmer and 40% is the maximum for a part time farmer.
The farm is registered for VAT, do I need to charge VAT on holiday lettings?
Holiday letting income is standard rated for VAT purposes so VAT will need to be charged to the guests, and collected on behalf of HMRC if the holiday letting is part of the farm business.
The holiday lets could be set up as a separate business entity (i.e. a different partnership, limited liability company, or sole trader business), so that VAT does not have to be charged. In this case it is crucial that the holiday lets are run as a totally separate business, having separate bank accounts, marketing activities, websites and accounting records. Otherwise HMRC may argue that it is actually part of the main farming business. *Note that total turnover must be below the VAT threshold of £85,000. Turnover above this requires VAT registration.
What is a Fuel Scale Charge and when do I need to apply it?
In circumstances where a business vehicle is used for both private and business purposes, instead of working out how much of the fuel is business related and therefore how much VAT can be reclaimed, a Fuel Scale Charge is applied.
You simply reclaim all of the VAT on all the fuel purchased and pay over a Fuel Scale Charge to HMRC which represents the private element. A Fuel Scale Charge should be applied to any vehicle with private use.
If you need any more clarification on any of these points, or indeed have any other queries please give Rob, David or Clare a call on 01768 892336.
The information contained here is for guidance purposes only and represents an outline of the relevant provisions. No action should be taken on the basis of the information above without first obtaining specific professional advice. No responsibility for any loss arising to any person acting or refraining from action as a result of the information contained here will be accepted by Robinson Udale.