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Farming And Lap Dancing


Julie Butler - Expert Author

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12 June 2013

It might be questioned what farming and lap dancing have got in common and one simple answer to that question could be ensuring that all the takings are declared and that all barter transactions are reflected correctly in the accounts. A recent case has emphasised this point. Risky Business (TC2408) was a case involving a lap dancing club and it has highlighted the importance of the recording of income. The facts of the case were as follows:

The taxpayer was a lap dancing club. The main sources of income arose from bar sales, entry fees, charges from the self-employed lap dancers and a fruit machine. HMRC carried out an investigation into the club’s tax affairs. It found that its records were inadequate and concluded that it had under-declared its takings. As a result, HMRC raised further assessments for corporation tax. The taxpayer appealed.

The First-tier Tribunal (FTT) stated that the problems in reaching an accurate figure for profits “stem from the dearth of satisfactory documentary records and credible evidence.”

Conscious effort to produce a fair result

The judge said HMRC had exercised due care and diligence. The inspector had made a “conscious and conscientious effort to produce a fair result.” In particular, rather than regarding the extra profit as directors’ fees or dividends, he treated them as loans to directors under TA 1988, s 419 (now CTA 2010, s 455) which allowed a “more favourable practical result” for the company. The taxpayer’s appeal was dismissed and this was a success for HMRC and a warning about the need for accurate records.

Barter and exchange

Within the farming industry there are many elements of barter or exchange which are not reflected in the accounts and do not give the accounts therefore the degree of active farming or husbandry that is needed to claim inheritance tax reliefs (IHT), prove Business Property Relief (BPR), or indeed the active agriculture for Agricultural Property Relief (APR). Whilst HMRC are very enthusiastic to try and deny APR and BPR this is important. For example, whether there was the active agriculture in the last two years taking place on the land and whether there was a business carried on for gain. It is essential that farm accounts reflect that the barter transactions and all income.

“Farm Gate”

Farming was encouraged by respected advisers more than a decade ago to promote “Farm Gate”, i.e. selling produce direct to the customer. Many farmers have followed that advice through. However, the problem is that such a multitude of small entries does make for quite complicated recording of items of sale that arise through sundry customers calling in at strange times of the day and night. There is often not enough activity to justify a till but there is enough activity to show active husbandry for IHT purposes. That must be reflected in the accounts and in the books and records. Likewise on the barter question, it could be that the local farmer grazes his cattle on the grass of an ageing farmer and in return carries out various tasks of fertilising, spraying and maintenance, and the work should be invoiced separately. There should be a sum for the grazing of the cattle and an invoice for the work that is carried out with regard to the farming operation. Such offset can cause VAT problems.

Claim for inheritance tax

Invariably in the review of an IHT400 (The Estate Tax Return) HMRC will ask for a split between fertilising, feed, sprays etc, which have historically been grouped together and it is essential that these are actually separated as the HMRC Capital Taxes Office invariably want to know what was the actual work carried out to produce the agricultural product, to grow the crop of grass, and what costs were there to look after the land which is essentially the task of the landlord. The case of McCall [2009] STC 990 showed the need to understand the difference between work that is carried out by what would be deemed to be the activity of the farmer as opposed to the landowner. What Patricia Hodge, on screen mother of TV personality Miranda, would say “what I would call a farmer and what I would call a landowner”.

Farmer v Landowner

It is essential that the role between landowner and farmer is clearly understood and all because a lap dancing club called “Risky Business” under-declared its takings. The tricks a writer will go to in order to attract attention (bit like Miranda)! There is no question that HMRC are attacking BPR and APR and in order to achieve these reliefs it is essential to prove a trade and agricultural activity and the correct recording of takings helps protect these reliefs.

For any probate lawyers producing Wills for farmers who have fallen into bad habits with regard to bookkeeping and accounting, it is essential when carrying out these works, the Accounts are seen, inspected and discussed. Likewise, the preparation of a Partnership Agreement highlights the need to check Accounts and look to matters such as the partnership records. Large disputes can arise through the incorrect recording of takings by partners.

Practical point

It is not just lap dancing clubs that are under the close scrutiny of the enquiry system. All “cash trades” must record takings – the HMRC approach is generally to produce a fair result and many farmers are “cutting off their nose to spite their face” by not keeping good records. With high land values to protect through other tax reliefs why take the risk?

About the Author

Supplied by Julie Butler F.C.A. Butler & Co, Bennett House, The Dean, Alresford, Hampshire, SO24 9BH.  Tel: 01962 735544.  Email;, Website;

Julie Butler F.C.A. is the author of Tax Planning for Farm and Land Diversification (Bloomsbury Professional), Equine Tax Planning ISBN: 0406966540, and Stanley: Taxation of Farmers and Landowners (LexisNexis).

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Article Published/Sorted/Amended on Scopulus 2013-11-22 09:42:09 in Tax Articles

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