[pointer]

I'm currently considering VAT registration, not wanting to go over ground that's already been covered on this forum, suffice to say everything seems to point to it being a worthwhile thing to do. My only question was whether the business needs to show that it's turning a profit within five years? I've seen this suggested a couple of times, but nothing definitive. And if this is a requirement, but wasn't achieved, would all the reclaimed VAT in that period need to be paid back to HMRC? Just making sure I know the implications before taking the plunge! Thanks

[Womble]

Hi Pointer,

I'm currently working through all this at the moment too, and it's ever so confusing  .

The following may be helpful, from the HMRC guide HS277 for reporting losses:

if you are a farmer or market gardener, you cannot normally claim your losses against income or gains in 2013–14 or 2012–13 if you also made losses (computed for this purpose only before capital allowances are taken into account) in each of the previous five tax years.

So my understanding is that if you start a smallholding business that initially makes a loss, you can offset this against earnings elsewhere, or expected future profits for a maximum of five consecutive years. After five years, you then could only offset the losses against future profit from the smallholding, not against any other income you may have.

There is also some useful info on pages 1 and 2 of this horsey newsletter.

I don't know how this relates to VAT though, and so far have been unable to find out!

[Izzy]

I have no experience of VAT/HMRC but I don't see that they would unless they suspected you were deliberately being non-profitable.
 
I knew someone who had a slight VAT fiddle which caused the taxman to look closely. He ran a VAT registered smallholding/low ground shoot. His wife ran a non VAT registered luxury farmhouse B+B. They charged guests very little for a days shooting and a lot for accomm. Bought supplies for the B+B via farm account and HMRC took a dim view

[Old Shep]

The 5 year rule doesnt apply to vat. As long as you are running it as a business you can be vat reg even if making losses year after year.

[hughesy]

Plenty of people/companies claim VAT back for years without ever making a profit. TBH if you don't think you'll be in profit within 5 years is your business worth the bother?

[Womble]

^ That's my dilemma at the moment Hughesy.  It's clear we'll never make a large profit from our smallholding. However, we will have an income of perhaps a couple of thousand a year, and yes I would love to run things at a profit if that is possible!

So, when I do my tax return, I now can't really put zero in the box that asks for income from other employment. (Even if it's not a profit, it's still an income).

My current feeling is that I'd rather not have the hassle, BUT if I'm going to be forced into registering as a sole trader smallholder, I'm darn well going to put in all the legitimate expenses that I can, and claim them back against the income from my other paid employment. I'm also going to register for VAT so I can claim my input vat back where possible too.

I sent this flowsheet to my accountant earlier, as she's trying to help me decide what to do. This shows my understanding of how things work, not hers, so it may of course be wrong. If that's the case, please correct me, as I'm finding all this quite a headache at the moment!!

[hughesy]

Not sure about the income tax where you're a sole trader and also have another income. Lots of people do it though so it can't be too difficult when it comes to the self assesment tax return. Her I run the business solely and my wife works and our tax affairs are completely separate. One thing about VAT is that you'll need to be meticulous with your records at all times if they find any irregularities they will investigate and can be a real PITA.

[Buttermilk]

Just remember that if you are VAT registered you have to charge VAT on things you do/supply.  Easy on 0% items but it adds up on taxed goods and services making them expensive for the person purchasing them if they are not VAT registered.  Example machine and man hire £20/hr without VAT but if you have to add VAT you have to charge £24/hr if VAT is 20%.  If you include it in the £20 you are now running at a loss.

[Womble]

Not sure about the income tax where you're a sole trader and also have another income. Lots of people do it though so it can't be too difficult when it comes to the self assesment tax return.

I have to do a tax return anyway, as director of my own wee company, so some simple sole trader accounts to go along with that aren't going to be much of a hassle.

I'm surprised there haven't been more comments on this thread though, as loads of us must be in the same boat WRT smallholding income and VAT?

[mowhaugh]

Something else worth being aware of is if you are operating a business where the amount you claim back in VAT is regularly more than the amount you need to pay, which is usual for farming businesses because of the nature of the product we are selling, but very unusual in the world of business in general, you can apply to do your VAT return on a monthly basis, so the money owing to you from HMRC is not outstanding very long.  We have been trading since 2006, and I have just had the first month where I have had to pay VAT to HMRC as my husband did an awful lot of contracting work, and we've not bought much other than feedstuffs, it was a bit of a shock!

[Garmoran]

When my Dad was alive he reclaimed VAT every quarter for years, until advancing years led to him losing track of his accounts and I persuaded him to cancel his registration so that I wouldn't have to discuss the matter with HMR&C when he passed on. He certainly saved thousands over the years.

I keep returning to the question of registering myself but haven't done so, because, as I understand it, I would have to charge VAT on any services that I supply to others (eg computer repairs, car repairs), not just on agricultural sales (which basically means sale of wool to BWMB).

Have I understood this correctly?

[Womble]

Hi All,

I just heard back from my accountant. She agrees with the general principles in the flowchart above, and also offered the following:
 
On the VAT, if you are making vatable supplies (which you would be albeit at zero rate) then you can claim back inout VAT on expenses.  No minimum amount involved or need to be making a profit.
 
I'm not aware of any threshold on when/how much of profit/income counts as being self-employed ie in business.  Unfortunately down to judgement.
 
There would be national insurance contributions to pay (at 9%)  if profit is above £8k

Hope that's helpful!


I think you're right Garmoran, If you register for VAT as a sole trader then yes you would have to charge VAT on everything you sell, at the relevant rate, even if you're running two unrelated businesses (smallholding and computer repairs for instance).

You could get around that by setting up as Gamoran Computer Repairs Ltd and Gamoran smallholdings (sole trader), but the hassle would surely be far more than it's worth. I don't think you can run two unrelated sole trader businesses and have one registered for VAT and the other not.



Since if you're a sole trader, it's the individual who registers for VAT, I think

[Garmoran]

Since if you're a sole trader, it's the individual who registers for VAT, I think

Yes, that's what I thought. Since my turnover is unlikely to ever reach 10% of the VAT threshold for compulsory registration I think I am likely to remain unregistered.

[Womble]

Sorry Sally, it looked fine when I originally posted it - hopefully fixed now by removing the quotes?
 
BTW Gamoran, I think there is another workaround VAT if say your smallholding were run as a VAT registered partnership with your spouse, whilst Gamoran Computer Repairs (non VAT registered) was just yourself as a sole trader.
 
I very much doubt the extra hassle would be worth it though!

[SallyintNorth]

Sorry Sally, it looked fine when I originally posted it - hopefully fixed now by removing the quotes?

Yup, that's better!  Ta.

Since I'm on, I'll mention that I think you do have to be careful about trying to run a VATable and non-VATable business alongside each other.

A neighbouring farm was doing B&B, and was told that they would have to charge VAT on the B&B since they are registered for VAT as the farm.  This made it non-viable, so now they don't do B&B