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Author Topic: Smallholding - is it a business?  (Read 7660 times)

graemeatwellbank

  • Joined Jun 2016
  • Blairgowrie
Smallholding - is it a business?
« on: July 02, 2016, 11:39:09 am »
I didn't expect anything else having followed this forum for several months, but thanks for the warm welcome posted in reply to my first post.

Formalities of starting up a Smallholding and HMRC
What is the general opinion about being a smallholder.
Is it a business or not?
Do you register as a company?
Does a smallholding have a separate bank account?
Do smallholders register for VAT or not?
I can imagine being charged VAT on some purchases but cannot imaging making any VAT-able sales. I think food is zero rated unless prepared and sold in a restaurant or similar. Right?
What are the different considerations affecting these points?
Including inheritance implications?
I think my wife gets NI credits as our son is a youngster (and I no longer need them) but what type of ‘benefits’ can come through owning/operating a smallholding?

Is there a ‘standard’ smallholders tally book or accounts system or similar? (assuming it is a business).
Does anyone have an accountant? Is one needed would it be beneficial? Why?

I have no intention of trying to make money out of my venture but I don't have enough in reserve to be reckless.

Too many questions in one post? Sorry but I'm impatient with only 9 months to go till the big start!!!
« Last Edit: July 02, 2016, 07:58:01 pm by Dan »

pharnorth

  • Joined Nov 2013
  • Cambridgeshire
Re: Smallholding - is it a business?
« Reply #1 on: July 02, 2016, 09:43:11 pm »
It's a good question and you may get some very varied answers on this. For many years my 15 acres were very subsidiary in financial terms to my earned income. I had a few liveries that paid for fencingrepairs, but specifically never wanted to make a profit. It would have been a waste of my time to produce accounts. Now I am semi retired the cash flow on the small holding might look significant, but still there is no profit. My understanding is if there is no profit, or intent to make profit within say a four year period, it is not a business. However, it is useful to keep a record of cash flow in case you should be asked to demonstrate this.
« Last Edit: July 02, 2016, 09:44:58 pm by pharnorth »

Backinwellies

  • Global Moderator
  • Joined Sep 2012
  • Llandeilo Carmarthenshire
    • Nantygroes
    • Facebook
Re: Smallholding - is it a business?
« Reply #2 on: July 03, 2016, 07:52:25 am »
It's a good question and you may get some very varied answers on this. For many years my 15 acres were very subsidiary in financial terms to my earned income. I had a few liveries that paid for fencingrepairs, but specifically never wanted to make a profit. It would have been a waste of my time to produce accounts. Now I am semi retired the cash flow on the small holding might look significant, but still there is no profit. My understanding is if there is no profit, or intent to make profit within say a four year period, it is not a business. However, it is useful to keep a record of cash flow in case you should be asked to demonstrate this.

If you are buying and selling it is a business whether it makes a profit or not .... but you can only claim tax back against other income for 5ish years provided you work towards making a profit (don't actually have to make the profit just ensure books show growth and development.) ....

Benefits?   fresh air  :roflanim:

VAT registration ... lots of smallholders do cos what you sell is generally  VAT free and so are feed inputs so you can then claim back VAT on other spending (net gain?)

Yes we do have an accountant ... but we both also have other income too so quite complicated. 

A lot will depend on size of your smallholding and what you intend doing with it.
Linda

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CarolineJ

  • Joined Dec 2015
  • North coast of Scotland
Re: Smallholding - is it a business?
« Reply #3 on: July 03, 2016, 08:25:53 am »
I run mine as a business, because I intend to try and make a profit from breeding sheep and holiday lets (in reality it'll be the latter supporting the former for several years!) - however I'm not VAT-registered because then I'd have to charge VAT on the holiday let bookings and unless I incorporated my other business (transcription and virtual assistant work) to make it a separate legal entity, I'd have to start charging all those clients VAT as well, which wouldn't go down well.  (Don't think I can make the croft a limited company and still be eligible for all the crofting grants, so can't do it the other way round).

At the moment, croft expenses are working beautifully to bring down my other income - I won't pay any tax for 15/16 or 16/17.

Womble

  • Joined Mar 2009
  • Stirlingshire, Central Scotland
Re: Smallholding - is it a business?
« Reply #4 on: July 03, 2016, 08:53:44 am »
Another reason to run as a business (either sole trader or ltd) is that I'm pretty sure you have to be in order to claim any single farm (subsidy) payments.


Re VAT registration, you can register for VAT later and claim back retrospectively for goods (3 yrs I think) and some services (3 months I think). So whatever you do, make sure you keep receipts.  We never thought we would be running our smallholding as a business, so I wasn't disciplined with this to begin with. We therefore missed out on loads of legitimate expenses that we could have offset against other income, purely because I hadn't kept the receipts.


There must surely be a specialist farm accountant in Perth. They would be a better bet than a normal accountant. My small business accountant is good, but keeps having to look up things that a farm specialist would already know.
"All fungi are edible. Some fungi are only edible once." -Terry Pratchett

pharnorth

  • Joined Nov 2013
  • Cambridgeshire
Re: Smallholding - is it a business?
« Reply #5 on: July 03, 2016, 09:09:07 am »


If you are buying and selling it is a business whether it makes a profit or not ....

A lot will depend on size of your smallholding and what you intend doing with it.

Yup understood. But real life is that PAYE employees sell various second hand items, cars, sofas, the odd puppy whatever on e bay and other advertising forums, eggs from the front door and all without being a business. So there clearly is a dignity level below which HMRC are not interested. So I am not sure my selling two lambs a year really constitutes a need for fully fledged annual accounts.

graemeatwellbank

  • Joined Jun 2016
  • Blairgowrie
Re: Smallholding - is it a business?
« Reply #6 on: July 03, 2016, 11:04:40 am »
Thanks everyone so far.

I had thought of people who have a pedigree dog and sell several (expensive) puppies on a regular basis while each lamb/calf is relatively cheap and the selling price will not be far removed from the cost of rearing. Also smallholders don't have large flocks.
Chickens and piglets come in larger batch sizes but still any profit would be marginal.

Lots to ponder over and in spite of my impatience, lots of time!



Womble

  • Joined Mar 2009
  • Stirlingshire, Central Scotland
Re: Smallholding - is it a business?
« Reply #7 on: July 03, 2016, 08:37:03 pm »
We had a good discussion on this some time ago, and I think what I posted then still stands:

Quote
In short - YES you must submit a tax return if you have carried out ANY economic activity, even loss making or a hobby, if it involves income or potential income / asset generation etc in a tax year.

Can I have a go at disagreeing with this please?   I don't think it's "any economic activity" that matters - it's "carrying out a trade".

Take this example from HMRC:


Gail is a full-time employee working for a stationery company. She pays her PAYE tax on this employment every month.  In her free time Gail makes cushions and uses most of them in her home. Occasionally she sells them to friends and work colleagues for an amount that just covers the cost of materials of £15. Sometimes she makes a loss. Any money she does make goes towards her holiday fund.] She decides to make extra cash by selling cushions on an Internet auction site and starts auctioning three or four to see how they go. They all sell for more than £50, a profit of at least £35 each. She uses this money to buy more materials and within a month she is selling around ten cushions a week, always at a profit, and is considering setting up her own website. Gail’s initial sales of cushions to friends are not classed as trading. It lacks commerciality and she does not set out to make a profit. The occasional sales are a by-product of her hobby. Once she begins to auction her cushions, she has moved into the realms of commerciality. She is systematically selling her goods to make a profit. She will need to inform HMRC about her trade, and keep records of all her transactions. On the level of sales shown in the example the potential turnover of around £26,000 is well below the VAT annual threshold so Gail does not need to register for VAT.


Replace the words "makes cushions" with "breeds sheep", and it's not 100% clear that sillyewe must be registered - it depends on whether the smallholding is being run as a business, with the intention of making a profit.

TBH, I'm in a similar situation just now. When we first started out, we only had poultry and there was no pretence or intention of making a profit from a few eggs here and there. Also, my then accountant's advice that we needed to keep a record of how many eggs we ate, and record them as a benefit in kind made me shudder (wasn't this supposed to be fun?), so I buried my head in the sand and haven't {at the time of posting this originally} registered anything.

Now we've got a few sheep, there will be more income from the smallholding (albeit less than £1K per year, and definitely running at a loss). This thread has prompted me to ask the advice of my new accountant, so I'll report back in due course! {I ended up registering as a sole trader, and VAT registering. It's debatable whether it's all worth the hassle, but at least it's getting easier the more I do it!}
« Last Edit: July 03, 2016, 08:38:38 pm by Womble »
"All fungi are edible. Some fungi are only edible once." -Terry Pratchett

Black Sheep

  • Joined Sep 2015
  • Briercliffe
    • Monk Hall Farm
Re: Smallholding - is it a business?
« Reply #8 on: July 04, 2016, 12:13:47 am »
From HMRC:

https://www.gov.uk/working-for-yourself/what-counts-as-self-employed

"Selling goods or services
You could be classed as a trader if you sell goods or services. If you’re trading, you’re self-employed.

What counts as trading

You’re likely to be trading if you:

sell regularly to make a profit
make items to sell for profit
sell online, at car boot sales or through classified adverts on a regular basis
earn commission from selling goods for other people
are paid for a service you provide

What doesn’t count as trading

You’re probably not trading if you sell some unwanted items occasionally or you don’t plan to make a profit. You can’t use any losses you make as part of a hobby to reduce your tax bill.

Contact HMRC for advice if you’re not sure whether you’re trading."

Whether you register as self-employed or register a company depends on a range of factors including things like whether you want to separate liability or use losses to offset tax elsewhere (although there are limits to this). Likewise the VAT decision depends on other things - largely whether you anticipate making sufficient purchases so that the VAT saving would be worthwhile.

Also important to note that as self-employed you also have National Insurance contributions to be made.

Womble

  • Joined Mar 2009
  • Stirlingshire, Central Scotland
Re: Smallholding - is it a business?
« Reply #9 on: July 04, 2016, 07:33:36 am »
You’re likely to be trading if you:

sell regularly to make a profit
make items to sell for profit


And WRT smallholding, there's the rub!  Are we "making" and selling goods for profit, or just to offset the (larger) costs of a hobby?  That depends so much on individual circumstances, it has to come down to personal judgement, an honest cashflow forecast and a conversation with a good accountant.


In our case, our business plan showed that we should be making a small profit after 3-5 years. This will never be enough to pay back the capital we've invested in fencing and equipment, but it was enough for my accountant to advise me to register as a sole trader, to ensure everything was beyond reproach.


At the end of the day, I still don't believe HMRC will care in the slightest if you run a loss-making smallholding without registering it as a business (as long as you have sufficient records to prove it makes no profit). All they want to do is to make sure that everybody has paid the right amount of tax on the whole of their income, which of course you will have done.
"All fungi are edible. Some fungi are only edible once." -Terry Pratchett

pharnorth

  • Joined Nov 2013
  • Cambridgeshire
Re: Smallholding - is it a business?
« Reply #10 on: July 04, 2016, 02:43:41 pm »
Yes. That is where I'm at Womble. I specifically don't want to make a profit. It takes as long to fill out a tax return for a non profit as it does for a profitable business so if I was going to get embroiled in filling out details I might as well go back to my chosen profession. So I keep a drawer full time of receipts showing the miserable few quid I make selling the odd excess lamb is more than offset by the acres of fencing we have paid for feed stuffs etc.    From a HMRC perspective this works providing you have a taxable income or pension that is clearly providing for your living standards. Where they seem to get interested is where there is a gap between someone's alleged income and their living standards.

Black Sheep

  • Joined Sep 2015
  • Briercliffe
    • Monk Hall Farm
Re: Smallholding - is it a business?
« Reply #11 on: July 04, 2016, 07:43:46 pm »
At the end of the day, I still don't believe HMRC will care in the slightest if you run a loss-making smallholding without registering it as a business (as long as you have sufficient records to prove it makes no profit). All they want to do is to make sure that everybody has paid the right amount of tax on the whole of their income, which of course you will have done.

Agree, which probably covers many/most smallholders.

However some may still want to register even in this situation if they want to take advantage of the opportunities to set off losses (at least for the first five years) against other income liable to tax or to reclaim VAT.

 

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