[Coximus]

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.

Therfore if you held a flock of sheep before April 5th 2014 you need to submit a tax return by end of this month....

If your not registered id ring HMRC Asap and explain, they are usually helpful for first timers. If you made any money obivously, even if its just a hobby you need to pay your dues . If you lost money - Providing you can prove you are aiming to run it as a viable business and it hasnt lost money for more than I think it was 3 years last time I checked, you can also offset your losses against your taxbill on your main income.... Thought for such a small number of sheep, and if you make losses year on year, they may declare you a hobby farmer and then not allow you to claim losses against tax, but you will still have to pay tax on income earned.

[sillyewe]

Eeek! This is all starting to sound very complicated.  Might need to hire in some professional help.

[sillyewe]

My records in past haven't been kept in much detail. I have the ins and outs in a separate bank account but not many receipts  to back them up. 

[Me]

My wife is a CA specialising in small businesses with a bias towards agri clients, don't try doing things yourself! Clients have come to her before sure that they/their aunt/time qualified nephew/agricultural college pseudo accountant etc was doing a great job because they had little or no tax to pay and actually what they were doing was wrong and/or had been costing them 000's. 

[Womble]

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 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!

[Coximus]

in a way you are right - by economic acitivity I meant trading - Simple example being im a gardener by trade - If I cut your lawn and you pay me, thats an economic activity, If I do the odd favour for my parents, or my grandmar and they pass me £5-10 for it, thats not as it barely covers my costs, is add hoc and is family..... That said I still run it through the books as it makes little difference.

A simple test for the hobby flock of sheep would be - Does she raise them for meat, and consume it herself and her family etc who pay her a sum for the animals upkeep etc? If so than its not a business really - If she sold a ewe to me or you - it is... if she sells any lambs in the auction ring, to an abattoir etc then its obviously a trading activity.

The hard point is pin pointing when you cross that line....

If I cull a ewe and share it amongst my family - they say give me £20-30 for the bits they get, thats not trading if its all I do, but as I sell Fatstock as well it is trading and I have to declare it.

In short - see an accountant!

[ladyK]

Hmmm... this is all getting confusing (and interesting!)
I have had an income (not a profit) of about £150 from the smallholding last year (selling two breeding lambs plus the odd half dozen eggs to visiting friends insisting to 'pay something towards the chicken feed'). I have not bothered to register the smallholding as a business so the income simply goes through my personal accounts without making much of a difference. That seems right in the context and would fit with the 'cushion making' example above.
However if I had registered the smallholding as a business and also registered for voluntary VAT I could be claiming back thousands in VAT on smallholding expenses besides any offset on other tax paid - surely that's not allowable? 
And if I'm still not making any profiut after 3 years then what - would I have to pay back the reclaimed tax/vat? Or would I just be declared a non-business (which is what I am sticking to for now anyway)

[Coximus]

To be honest your best speaking to a specialist accountant specializing in agriculture -

Snipets from advice I got and paid for;

If its conceivable you could make a profit, register for vat and treat it as a business, the vat claim back alone on is 20% of your expenses, so even a small flock of 30-50 ewes could get £400 or so back in Vat.
Again, fencing your field? new gate? claim your 20% back.

If you make a trading loss - IE sell your lambs and get bad price at market, costs higher and a few ewes die, bad winter etc... you can offset the loss you make against tax in future years.... meaning if you make a profit next year, you may not need to pay as much or any tax on it, as they take into account your loss the previous year (s)/.

Also their is a size issue - if your keeping sheep and a few chickens in numbers that are just too small...... its basically a hobby - ie half a dozen chooks and 2-3 sheep - you simply could not make any money from that after your expenses....

It gets more complex and messy but an accountant should be able to tell you pretty quick where you stand;

In my case it was - Register as a business as I had plans in place to grow my flock to 35+ breeding ewes, and have the land in place, to support revenues of 5-7k based on similar farm business.... Which meant that although costs are likely to trail close behind the revenue, their is a strong chance of profit in some years.... and more so if you can claim back the vat - as a 15ac site is enough to mean expenditure where the vat can run into the £100's.

[sillyewe]

Just called HMRC this morning.  They stated that i do need to register as self employed and submit a self assessment tax return as i am seen to be trading (ie. Selling and purchasing sheep).  The fact that i have had the sheep for a few years and not been registered may mean than i will have to pay a late notification penalty which may be about £100.  I think what i am going to do now is look for some professional advice and get myself sorted out as last thing i want to do is land myself in trouble.

[Womble]

Good stuff.  By doing that, you'll definitely be able to sleep at night. Since you have a day job, you should be able to register for an exemption from self employed National Insurance contributions, so that's one less thing to worry about.
 
Re asking HMRC direct, am I allowed to say "But they would say that, wouldn't they?"  .  I'd definitely be getting an accountant's advice as well.

[shygirl]

Just called HMRC this morning.  They stated that i do need to register as self employed and submit a self assessment tax return as i am seen to be trading (ie. Selling and purchasing sheep).  The fact that i have had the sheep for a few years and not been registered may mean than i will have to pay a late notification penalty which may be about £100.  I think what i am going to do now is look for some professional advice and get myself sorted out as last thing i want to do is land myself in trouble.

can you not just start trading now and avoid the late fee? did you give them your personal details?

[sillyewe]

No i didnt give them any details, just asked general questions!  Im hoping i can just start from now as my past records of ins and outs are not possible to track accurately. 

[shygirl]

then just play dub and registered now. being self-employed isn't hard.
I don't know about vat returns except they are three monthly?

[Deere]

I've just entered my details online, fairly straight forward 

I've not kept receipts for sheep, tools etc that I've bought as I started out as a hobby so I'm going to have to some homework.

[Deere]

I think we could do with a Smallholders business/paperwork/Accounting thread somewhere