VAT Trap On Horses – More And More Farmers Are Being Saddled With A Major VAT Problem

Paul Munson, Farming Specialist at Green and Co Accountants, warns farmers about the all too common problem of incorrectly accounting for VAT.

If you are one of the increasing number of farmers who are offering horse tack and livery services as a way of generating additional income, have you carefully assessed your VAT position?

Many farming businesses have been caught out by the tax authorities. They have continued to account for VAT for the horse tack and livery venture in the same way as they do for their farming activities, failing to realise the mistake that they have made – this activity is not classed as farming by Her Majesty’s Revenue and Customs.

At Green and Co we have been advising our extensive farming client base, located in South and West Wales, about the correct accounting methods since 2002, when the provision of stabling and livery started to be regarded as generally exempt from VAT. Whilst it may appear to be an advantage not to have to charge customers VAT, it can potentially cause major problems, particularly where the equine business becomes a significant proportion of income.

In simple terms the business cannot reclaim input VAT on goods and services which relate to the stabling - this could even apply to items such as buildings and tractors. Where the use of goods is shared between the farming business and the stabling business, the correct apportioning of input tax, according to the HMRC calculation, is absolutely essential, in order to establish the correct amount to be reclaimed. There may be circumstances where all VAT can be reclaimed, but this is not straight forward.

The risk of repayments and penalties is high, as if VAT is not being accounted for correctly, the authorities will not be aware of the change in the business unless an inspection takes place.

It is essential that you take professional advice if you believe that you are in this position – your accountant should be able to advise you about ensuring that you are dealing with VAT correctly.

For more information please contact Paul Munson, Green and Co, 01633 871122, e-mail paul@greenandco.com

Green and Co are a three partner practice based in Pontnewydd, South Wales and provide specialised services to the agricultural and land based sectors, in addition to their comprehensive range of services, from a new business advisory service, acquisitions and disposals, to tax planning, audit and accounting – go to www.greenandco.com