[Tim M]

Hi

I currently have a very small patch of land and a full time office job but I will be working part time next year and looking to expand my smallholding. I'm registered for self-assessment with the inland revenue though wondered what the rule of thumb is for when any incoming or out-going is either subject to tax.

For example if I purchase farm equipment  :farmer:at a cost and then sell some pigs  should I declare the money gained from the pigs in my tax return and also claim tax back on land rental, equipment etc. I realise this is an area fraught with custom and practise but I don't want to fall fowl of the inland revenue!

Any help very welcome,

Tim

[Dan]

Strictly speaking anyone selling livestock, meat etc should declare the income to HMRC, whether through a personal tax return or business accounts.

So it's really up to you. The benefits of running your smallholding as a VAT-registered business have been discussed a few times (e.g. http://www.accidentalsmallholder.net/forum/index.php?topic=56410 ) but if you do go down this route you need to be able to prove you're operating on a commercial basis otherwise you may be liable to repay any VAT reclaimed.

HTH.

[Tim M]

Thanks Dan, very helpful.

[Womble]

Hi Tim,  I'm registered for self assessment too, but I'm also registered as a self employed smallholder (i.e. the business category is farming).

Income has to be declared if it is not 'incidental' income. So, if you keep a few hens as a hobby and sell the eggs to friends, that is incidental. If you keep a hens for the purpose of producing eggs to sell and make a profit, that's a business (the intention matters as much as the sums involved).

As for expenses, if they are incurred in support of the trade, they get included in the accounts. That means that in our case at least sheep shears count 100%, a wheelbarrow used half for mucking out and half for the garden would be claimed at 50% of its purchase price, whilst a new garden spade wouldn't go through the books at all.

It's pretty straightforward once you know what's needed, but some parts are counter-intuitive, especially around things like capital allowances for plant and equipment. Do you have an accountant?  A good one will be worth their fee. Talking of accountants, have you anything to add [member=26320]doganjo[/member] ? 

[doganjo]

Why would you not claim for the spade?  I'm sorry but I think you've maybe got that wrong, David. 

You should set up an excel spreadsheet or just have a hard cover book if you aren't that technical. 

All income on one side
All expenditure that is wholly for the business the income is generated from on the other.

And keep a note of capital items that you can claim an annual allowance against - like tractors, trailers etc. 

When starting up you can take any equipment you already own into the business and claim the annual allowance off it in the first year of trading and thereafter a percentage of it's written down value.

The difference between them is your profit or loss and you pay tax and Class 4 NIC on that.  The percentage depends on whether you already pay tax at standard rate.

[Kimbo]

.... and that's why you need an accountant 

[Tim M]

  I hate Excel so will start with a notebook and just watch how things go for now. At the moment I'm only paying out and would be surprised if we made any incidental income at all this year. This might change in the future so I'll just keep a check on it and look back on the year in April.

I have found the answers really helpful though, so many thanks.

[pharnorth]

I've been through a similar dilemma. Essentially always aimed to break even on income Vs expenditure or run at a ' loss'. But the loss assumes the value the household takes (pork lamb, grazing my own horse) has no value. In practice I have always kept all receipts so can show the expenditure if ever asked. In previous years my full time income ( and tax bill) vastly greater than any cash flow through the small holding, now as I cut back on work they will get closer. So good thread which helps me understand other people's approach and experience.

[doganjo]

.... and that's why you need an accountant 

YUP!!!!  That's why I have a lot of friends who I barter with 

[Kimbo]

I think all this stuff is a potential minefield.
eg: I don't know what the position is about selling pullets. Am I able to cost up their feed, bedding, accommodation, heat, wormers etc etc and say " Yep, no profit to be had here" and then not declare the money I get selling them? Or should I declare everything, just in an effort to be transparent? One man's "incidental" might not be another's.
You can apply my question to pretty much everything done on a small scale: eating eggs, apples, jam, hatching eggs.
And call me paranoid if you like but I just think HMRC find it a lot easier to go after the likes of small fry like us than they do the millionaires who employ teams of accountants in order to avoid tax.

[pharnorth]

Yes Kimbo, it is a minefield and does depend on which group they are targeting. But they also have limited resources so will go after those which are clearly living beyond their declared income. E.g if you have two helicopters as well as a Porshe it will raise suspicion on a declared income of negligible.  Realistically if I have to submit full accounts to show my hobby is not making a profit the tedium of doing that rather destroys the point of the hobby. It would most likely lead to a trip to the abbatoir.

[doganjo]

Basically if you are claiming expenses you also report the sales (no matter HOW incidental any of them are), and work out the profit or loss from that.  For a new business usually HMRC will ignore losses of up to 5 years.  It is ALWAYS better to be up front and honest when dealing with tax inspectors!

[Womble]

Why would you not claim for the spade?  I'm sorry but I think you've maybe got that wrong, David. 

Because it's a garden spade, used for gardening. In our case veggies grown are only for our own consumption, thus the polytunnel etc is not part of any business. This means that for us, new polytunnel plastic, garden spades etc are not business expenditure (maybe I should have chosen a less ambiguous example). This also happily means that only one ingredient in last night's courgette omelette was a benefit in kind!   

Your circumstances may vary of course. I reserve the right to be wrong, and any wisdom dispensed by me on the internet is worth exactly what you paid for it!