Navigating VAT in Farming: What you need to know

Registration threshold

You must register if either:

• Your total taxable turnover for the last 12 months goes over £90,000 (the VAT threshold)

• You expect your taxable turnover to go over £90,000 in the next 30 days

  
  

You can also register for VAT voluntarily, if you haven’t passed the thresholds and think it might be beneficial.

Why become VAT registered?

The standard accounting for VAT involves charging VAT on all taxable sales and it also gives you the ability to reclaim VAT on all business expenses that are wholly and exclusively for the purpose of the business.

Typically, you would record all income and expenses on your VAT return on a quarterly basis, but it can be on a monthly/annual basis if preferred.

Farmers would almost always benefit from VAT registration as sales of livestock/forage are all zero rated and therefore no VAT is payable on these sales. There is, however, VAT on many costs such as fertiliser, sprays, veterinary, professional fees and, therefore, it’s beneficial to be able to reclaim the VAT.

A business needs to keep records for their end of year accounts, and having an obligation to keep up to date with the VAT returns gives you a reason to keep your records up to date, while reclaiming money which could be due back to you.

VAT implications for diversified activities

Whereas, farming activities often create zero rated sales, diversification can often be subject to standard rated VAT.

When setting prices, you need to consider the addition of 20% VAT to sales prices.

The addition of VAT at 20% is fine when invoicing customers who can reclaim the VAT, but could make you look expensive to those that can’t reclaim VAT. A change in business structure can be considered to see if VAT registration can be avoided if selling to those without VAT registration.

It’s worth bearing in mind that if you make exempt sales, e.g. rental income, that you may not be able to make a full recovery of the input VAT related to those sales under partial exemption rules.

Common pitfalls and how to avoid

Late submission - each late submission receives a penalty point. Once 4 have been reached, a financial penalty is issued. Therefore, timing is key!

VAT codes - standard, reduced, zero and exempt items appear on a VAT return while items coded with "no VAT", won't. As a rule, all business expenses should be shown on a VAT return and everything private, shouldn't. There are exceptions to this, however. We can provide a help sheet to ensure you’re using the right codes.

Private proportions - the farmhouse is usually an integral part of a farming business and as such you can reclaim VAT on the business proportion of the house electric, heating oil and any repairs. The same goes for the business proportion of telephones, internet and motor running costs. A sensible proportion for business use should be decided upon, using either the percentage of rooms used for the business or by considering the amount of farming activity being carried out compared to private.