[tommytink]

I’ve registered a partnership as me and my OH want to run a business from out smallholding. Nothing fancy, just something to earn a few quid to pay for the animals. We also wanted to register voluntarily for VAT so we can reclaim the tax we’ve spent on numerous and no doubt future purchases. I’m looking online but it says that you can’t register voluntarily if you only sell zero-rated goods/services. Live animals come under this zero-rating, and breeding/selling animals is what we planned to do. I’ve also read about the agricultural flat rate scheme but it doesn’t seem that beneficial as you can’t reclaim VAT on your purchases.
Can anyone that has registered for VAT advise what they did to get passed this? A lot of people I’ve come across doing the same sort of thing all say they’re registered so there must be a way??

[SallyintNorth]

Offsetting business expenses against tax is one thing, and you don’t need to be VAT registered to do that.

Reclaiming VAT on business expenses is a separate thing, and is available to farmers (who are net reclaimer) as they produce food for us all.  If you can be eligible as a farm business, that would meet your needs?  I’m not sure what hoops you would need to go through.

In both cases I think you cannot make claims retrospectively, so any purchases you made before registering would probably not be eligible.

And a word of caution...  once you do register for VAT, then all your sales come under the legislation.  Including if you decide to do B&B, run courses, or one of a hundred other diversifications, most of which are not zero rated, so you would have to add 20% to your prices, all of which extra you would have to give to the government.  So don’t do it unless you are certain you won’t be selling much of anything at all which isn’t livestock.

[henchard]

I used to run a small book publishing business (books are zero rated) and registered below the 85K threshold and never had an issue (although I suspect I didn't register on line as it was some years ago). I just got a refund paid every quarter.
It does of course need to be a bona fide business not a glorified hobby

Just give their helpline a call and ask them would seem the obvious thing to do.

[Womble]

it says that you can’t register voluntarily if you only sell zero-rated goods/services.

Where does it say that, Tommytink?  Do you have a link?

[tommytink]

Hi and ta for the replies. Late response again as this smallholding business takes up all my time!!

Yes Womble, here’s a link: https://www.gov.uk/vat-registration

States you if you only sell items that are exempt/zero-rated you can’t register for VAT.

If you are in farming, horticulture, etc they do an agricultural flat rate where you are allowed to add (and keep) 4% to any sale price. Not much use if you’re spending a lot though as you can’t reclaim VAT on purchases...

I spoke to a friend who has bought a (larger than my) number of sheep to breed and sell etc and they said they had the same query when the set up. They were advised to go ahead and register. They’ve put in two quarters reports with a large amount of outputs and a nominal input and not been queried.

I know they usually give you five years to prove yourself, as a business.

Also know you can back-date VAT up to four years. Started our partnership from Feb so no probs there. Not too bothered about off-setting.

In process of registering for the VAT but they’re asking what I predict my first year earnings will be and I’m trying to work out what to put so it doesn’t raise a flag!! I guess I could “predict” whatever I want; doesn’t mean to say it’s going to come true...

[Terry T]

I read this as you can’ t register if you are below the threshold if you only sell exempt items e.g. stamps. Zero rated should be OK. My accountant set mine up for me - I only sell veg which is zero rated and I get reimbursed quarterly for any tax on purchases.

[doganjo]

As an accountant my advice is don't do it. A lot of extra book keeping work, and as has been said if you decide to expand your activities you'll probably start paying VAT back rather than receiving refunds

[Womble]

Hiya, I take it you are referring to this part?

You can register voluntarily if your turnover is less than £85,000, unless everything you sell is exempt. You’ll have certain responsibilities if you register for VAT.

I know it's confusing, but there's a big difference between zero rated (e.g. food) and exempt, so that quote doesn't apply to smallholders.


Doganjo is right, there is some extra bookkeeping work, but IME it doesn't take long and the VAT reclaim we get back on things like vet bills and other vat-able supplies pays for that time easily. I find I can do our quarterly accounting and VAT return in under an hour, and then it's filed automatically with a single click in FreeAgent. YMMV of course, but if you're going to be keeping good accounts anyway and not planning to make vat-able sales in future, it could still be worth registering.

[Me]

Paying an accountant is usually worthwhile. People loose themselves £1000s and even £10,000s trying to save £100s. VAT is easily cocked up.

[doganjo]

Paying an accountant is usually worthwhile. People loose themselves £1000s and even £10,000s trying to save £100s.

True, but I never charged £100s - that's why I'm not driving a gas guzzler and living in a mansion 

[Maysie]

If you are ultimately selling the produce as food (in its basic form), then the VAT should be a one-way street for you. I agree there is a degree of paperwork involved, but it really does not take long if you are reasonable with excel/figures/accounting software. 

It is surprising how much stuff which is required to keep animals attracts VAT.  Fencing, gates, wire, quads, trailers, tractors, contractors, feeders, feed bins, tools, equipment etc etc.  The list goes on and on and on. 
If you arlready have most of the kit required and your fields/fencing etc are already all in good order then you may not actually reclaim that much.   

You do need to be a bona-fide business though, not a glorified hobby, otherwise the VAT man will not be a happy bunny. 

[tommytink]

I’m keeping accounts for the partnership anyway, and I’ve done VAT returns for years so am familiar with the process. I don’t think it’ll create a great deal of extra work for me, but I have this query as our previous company was registered for VAT by our accountant as we were over the threshold. This is different as I’m registering and am under the threshold!

I read exempt and zero-rated to be the same thing, as when I clicked the link it spoke of either zero-rated or standard-rated. Then when I looked further I could see the difference, exempt and zero-rate, so thanks for pointing it out!

We are definitely planning on a business, not a hobby, but it won’t make massive money. I know we have five years before anyone might query us? But at the beginning, just starting out, we genuinely won’t make a lot. Obviously we are planning to expand and make more profit as we go.

So to my previous query, when they ask what I anticipate my first year profit to be-  obviously it’s not going to be huge. Does it bear any relevance in being able to register if I put just a couple of thousand or so??