[jaffab]

Hello All,

Need some input on a discussion the wife and I are having.  As the title suggests, its on the Pros, Cons and Requirements to create some form of company for the small holding....

So we will have a small 'hobby' smallholding (10 acres) with a small selection of animals, fruit, veg and bees.  95-99% of what we produce will be for us.   Its a hobby - an early retirement place for us to raise plants and animals.

But, whilst we wont have a need to sell anything, we expect that within 12-24 months, we will be seeing a glut of things that we might have an excess of that.. we might want to sell; honey, piglets, preserves, seedlings, etc - the usual mix.

The wifes response was "Well, we will just sell them via ebay (honey), markets, car boots and the like" - which is fine, but as this discussion points out, anything which generates income beyond the occasional ebay or sale to family/friends, needs to be registered, controlled, reported to HMRC etc....

https://www.accidentalsmallholder.net/forum/introduce-yourself/moved-hi-everyone-help-with-heptavac-injection/?PHPSESSID=c527ef6ae20597954bc2fe53f983592e;prev_next=next

...The above thread seemed to be for a bigger smallholding than our own hobby situation, and there was no real outcome.   I am quite drawn to the "just keep all bills and if anybody comes knocking, show all the expense"...

For me, forming a company (again, I already have an IT freelancing company that I am busy closing down) seems overkill and a massive headache.   Say we sell a plant - but we had bought the pots ourselves, all the accounting for that - ringfencing what is 100% for the smallholding business vs what is for the smallholding for US.

The other complication, is that the wife wants to be able to take card payments for stuff if/when we go to a market.. and I am not sure things like SumUp terms allows individuals to use the machines...

https://sumup.co.uk/welcome/home/?gclid=Cj0KCQjwsZKJBhC0ARIsAJ96n3U1J6-hu69OnF4y7WbgHecz6iNkM8FHe6-iarR2IStoU1eqzdudeMYaAsZ4EALw_wcB

Thoughts, ideas and comments welcome.

[Womble]

It all depends on whether this is "incidental income" from a hobby, or whether your intention is to make money (even if that is only to defray costs). By the time you're going to farmer's markets and taking card payments, that looks a lot like "trading", don't you think?


You don't have to set up a company though - you could register together as sole traders, for instance?

[Fleecewife]

Our place is a similar size and ethos as yours; we don't have a registered company.
Any income we have balances quite nicely with expenditure and comes from sales at the gate and of breeding sheep. We don't pay tax but then we can't claim any back and if you have any large outlays early on that might be a factor to consider.  We considered it, thought about the paper work and decided not to bother.
We did at one point claim certain farm payments. The paperwork involved for us and them was ridiculous and we ended up with something like £12 75 as hedgerow payment and our acreage reduced on their map to make it 0.01 hectares below the limit to qualify for payment. Stuff that.
Because we keep sheep we have to be registered for that and we have certain legal obligations which involve a bit of paperwork but not much
I see no benefit from forming a company to an enterprise so far below the tax limits. 

How about seeing how you go for the first couple of years? Working a smallholding is much harder work and doesn't have the returns you may be expecting

[Buttermilk]

We run 14.5 acres and have not formed a company as it is just us.  Next door with 7 acres has got a company as he has other income and uses it as a tax loss.

[jaffab]

It all depends on whether this is "incidental income" from a hobby, or whether your intention is to make money (even if that is only to defray costs). By the time you're going to farmer's markets and taking card payments, that looks a lot like "trading", don't you think?


You don't have to set up a company though - you could register together as sole traders, for instance?

No, the intention is not to make a profit.  Its a hobby/keep-busy smallholding.   If we sell anything its only to:
1) Use up the surplus we dont need and
2) Throw some pennys back into the smallholding to balance out the cost of feed, etc

[Womble]

It's not particularly clear, but this link says:

"‘Broadly, ‘trade’ can be taken to refer to operations of a commercial kind by which the trader provides to customers for reward some kind of goods or services"

If you're selling at farmer's markets, that's clearly swapping produce for money. The question is, is that money a "reward" in the commercial sense, if you're not making a profit?

I'm genuinely not sure of the answer to that. The rules all seem to be based around people running businesses with the intention of making a profit. When you run one so you get to see the sunrise and provide your own food, it all gets messy!

[SallyintNorth]

It's not particularly clear, but this link says:

"‘Broadly, ‘trade’ can be taken to refer to operations of a commercial kind by which the trader provides to customers for reward some kind of goods or services"

If you're selling at farmer's markets, that's clearly swapping produce for money. The question is, is that money a "reward" in the commercial sense, if you're not making a profit?

I'm genuinely not sure of the answer to that. The rules all seem to be based around people running businesses with the intention of making a profit. When you run one so you get to see the sunrise and provide your own food, it all gets messy!

Fixed the formatting so we could read it...

[doganjo]

As an accountant can I offer a few comments?
 
1. A limited company must report to HMRC annually whether profits are made or not
2. You can register with HMRC anytime as a business or partnership
3. If either of these is done HMRC will be looking for profits within 5 years.
4. Sum up can be used by anyone, not just a company or a sole trader or partnership
5. If cashless payments are preferred you can give your bank sort code and account number to customers, they can pay on the spot if they have online banking

My advice for what it's worth is that you are unlikely to be making profits. 

What you may do is receive money for sales which will go towards your expenses

In my view, unless you aim to sell a huge amount of produce there is no need to either register with companies house as a company nor as a sole trader/partnership with HMRC

And for goodness sake don't even mention VAT! 

[Rosemary]

We've claimed back thousands in VAT over the years, but you don't need to form a limited company to do that.

[Womble]

^ Just to clarify, this is because loads of the stuff you buy for a smallholding (equipment, vet bills etc) has VAT added, but most of what you sell will be zero rated* for VAT (food). What that means in practice is that your 'input VAT' ends up being more than the 'output VAT', therefore you get a net refund once a quarter.


Whether that is possible for your circumstances, or enough to be worth the hassle is something to work out separately, but I just thought that was worth the quick explanation.





* interesting trivia - honey bees are zero rated for VAT, but bumblebees are vatted at 20%. So, if you plan to sell over £85K worth of bumblebees a year, you'll have to register for VAT. You're welcome  .

[jaffab]

We've claimed back thousands in VAT over the years, but you don't need to form a limited company to do that.

As per DOGANJO's very very useful contribution, did you do this without forming any kind of company/sole-trader-partnership?  If so, how did you go about this?

Or was it a typo.... "... but you DO need to form a limited company...".. which is understandable?

[Womble]

A sole trader can certainly register for VAT. Also a sole tradership doesn't necessarily have to be only one person (I know - not confusing at all, is it!?)

The biggest difference is that a sole tradership isn't a separate legal entity to you yourself, like your IT company is. You can still register for VAT though, and indeed would have to if your turnover exceeded 85K (with or without bees).

[Rosemary]

We've claimed back thousands in VAT over the years, but you don't need to form a limited company to do that.

As per DOGANJO's very very useful contribution, did you do this without forming any kind of company/sole-trader-partnership?  If so, how did you go about this?

Or was it a typo.... "... but you DO need to form a limited company...".. which is understandable?

As Womble says. We ARE a limited company but that's incidental to VAT registration.

[arobwk]

My 4 pennies worth:  if one is not intending to make a “proper" business out of a smallholding with target income of many £k p.a. and requiring substantial business loans, then no real point in registering as a Ltd company IMO.  Registering as a Limited Company protects Directors against personal liabilities if the Company goes bust, but, from your outline, this is not going to be an issue.

As to registering as Sole-traders:  I’m sure you will know that gross incidental income p.a. of £1k does not need to be declared to the tax man (I assume £2k for a duo !??).

If you expect gross small-holding income over £1k (£2k ??) then probably best to register as Sole-trader/s (which will, of course, require an annual tax return).

 
[I don’t doubt there are many traders out there dealing cash-only for many £k p.a. who avoid that HMRC oversight, but that is a conscience thing and a risk you might or might not be prepared to accept. Personally, I prefer to pay my wee bit of tax to help make the UK viable (especially given the Covid financing burden).] 

[doganjo]

My 4 pennies worth:  if one is not intending to make a “proper business” out of a smallholding with target income of many £k p.a. and requiring substantial business loans, then no real point in registering as a Ltd company IMO.  Registering as a Limited Company protects Directors against personal liabilities if the Company goes bust, but, from your outline, this is not going to be an issue.

As to registering as Sole-traders:  I’m sure you will know that gross incidental income p.a. of £1k does not need to be declared to the tax man (I assume £2k for a duo !??).

If you expect gross small-holding income over £1k (£2k ??) then probably best to register as Sole-trader/s (which will, of course, require an annual tax return).
 
(I don’t doubt there are many traders out there dealing cash-only for many £k p.a. who avoid that HMRC oversight, but that is a conscience thing and a risk you might or might not be prepared to accept.)

Quite right
Quote from HMRC Website
"Who must send a tax return
You must send a tax return if, in the last tax year (6 April to 5 April), you were:

self-employed as a ‘sole trader’ and earned more than £1,000 (before taking off anything you can claim tax relief on) - this is a bit misleading too - does that mean before business expenses or before things like annual investment allowance
a partner in a business partnership
You will not usually need to send a return if your only income is from your wages or pension. But you may need to send one if you have any other untaxed income, such as:

money from renting out a property
tips and commission
income from savings, investments and dividends
foreign income"

My advice is to wait and see what happens regarding sales, or regarding VAT