The VAT Time Bomb
Submit Articles Back to Articles
VAT 'hit team'
Are you prepared for the VAT 'hit team'?
It is considered by many that a decade ago the preparation of the farm VAT
Return was a relatively easy affair. The income was virtually all agricultural
and therefore zero rated and most of the VAT on expenses could be reclaimed.
The new century has seen a lot of change – more cottages available for let,
barns converted to residential and commercial use and there is also a vast
amount of 'alternative land use'. Where the building conversion is commercial
there have been 'options totax' so that all the input VAT can be reclaimed. The
changes have resulted in an extremely complex VAT Return for many farmers.
Income from residential lettings is an 'exempt' supply for VAT purposes. The
result is generally 'partial exemption' which involves some interesting and new
terminology – 'de minimis limits', 'annual adjustments', 'the standard method'
and the 'use based method'. If this vocabulary is alien to you then panic!
With the HMRC documented attack on the VAT on shooting my firm's general
synopsis is that there are more worries for the farming community through the
VAT treatment of cottages and the alternative use of buildings than their
involvement in shooting. The VAT Shooting Project is a team from Norwich who
claim an 'average extratax take of £19,000 a visit'.
Farming was historically deemed a low risk to the VAT inspectorate and it is
often at least 10 years since a VAT inspection was undertaken at most farms. Is
there a nightmare in prospect? What are the action plans that the farmers can
The November issue of 'One HMRC' states it 'would like to see the [shooting]
project extended to cover other businesses farmers have diversified into to make
money'. Have you checked the VAT treatment of the new money spinners?
It would be cost effective and a sensible safeguard for farmers to have a
‘VAT audit’ carried out by the farm accountants/tax advisers. The review of VAT
Returns is often not included in the engagement letter of the farm accountants
and if the VAT questions have not been asked the answer may not have been given!
The conclusion is that the tax and VAT checks have to be carried out and some
of the complacency associated with the VAT has to be revisited. Ask your tax
adviser to visit you before the VAT inspector does!
About the Author
Butler & Co specialise in the
farming and equine industries, focusing on preparation of accurate, detailed
accounts combined with expert tax advice and planning, particularly in the
fields of Inheritance Tax and Capital Gains Tax.
Julie Butler FCA can be contacted by Tel: 01962 735544 or Email;
Butler & Co.
Follow us @Scopulus_News
Article Published/Sorted/Amended on Scopulus 2007-06-30 17:47:45 in Tax Articles