Diversified farm businesses are being targeted by HM Revenue & Customs for failing to charge VAT. The authorities can recover up to three years’ back tax as well as charge penalties and interest.
Problems are most common where a diversification claims to be separate from the main farming business with a turnover under £67,000 and is, therefore, not VAT registered.
“If you get it wrong the liability could very quickly outweigh any advantages from diversification. HMRC is pursuing businesses vigorously,” said Robert Hatch, partner at accountant Ensors.
“Unless a proper structure and practices are in place to show the new business is run separately, HMRC often finds that the diversification is part of the farm business, which is usually VAT-registered.” Where this is the case, VAT should be charged on all eligible goods and services, not just those of the core farming operations, he said.
“We have seen several cases where the tax assessed is £18,000-25,000. B&B and holiday cottages appear to be current targets, although shooting is another area where HMRC has been active.”
Farm contracting, hiring sporting facilities like golf courses, caravan and camping pitch fees, and open-farm admissions are other examples where VAT should be charged, Mr Hatch said.