As VAT becomes more of a burden and avoiding penalties is a greater concern, a long standing scheme offered by HMRC may be more attractive than it was previously.
The Agricultural Flat Rate Scheme allows farmers to charge a fixed levy of 4% on certain services to VAT registered customers. This 4% levy is not VAT and can be retained by the farmer; however, it can be reclaimed as though it were VAT by customers. In effect it is a government funded supplement that is intended to compensate farmers for the loss of an ability to reclaim VAT on expenditure.
Who can join the scheme?
You can join the scheme if you satisfy all the following conditions:
· you produce goods, or goods and services, which qualify under the scheme (please see Appendix 1 below);
· any current VAT registration is cancelled;
· the estimated gain from using the scheme is more than £3,000 in the first year. There is no such limit thereafter.
· you must not have been subject to certain VAT penalties or convictions in the last 3 years.
You will not be able to join the scheme if:
· the value of your non-farming activities is above the VAT registration threshold;
· you are engaged in an activity once removed from farming, for example processing farm produce; or
· your primary activity is to buy and sell animals
How do I join?
A person carrying on any of the designated activities in Appendix 1 can apply for certification as a flat rate farmer. A Form VAT 98 Flat Rate Scheme for Agriculture needs to be completed and sent to HMRC. HMRC will then either issue a certificate to confirm where your membership starts or reject your application, giving reasons why they have done so. The issue of a certificate cancels any VAT registration.
The Commissioners have the right to refuse to issue a certificate to a farmer who looks likely to benefit by more than £3,000 in his first year in the scheme. This would only occur if 4% of your qualifying supplies exceeded input tax incurred by £3,000.
What are the advantages?
· Reduced administrative burden, you do not have to complete any VAT returns or pay anything to HMRC.
· As there are no VAT returns to complete, there is a reduced risk of being penalised for making a mistake.
The scheme may be particularly beneficial if you have non-farming activities, such as B&B, currently below the VAT registration limit, on which you have to charge VAT because you are VAT registered as a farmer. Under the Flat Rate Scheme so long as the value of non-farming activities stayed below the VAT threshold no VAT would be due on these supplies.
How can Ensors help?
A member of our team of specialist VAT consultants will be pleased to assist you in deciding whether you would:
· be eligible for the scheme; and
· benefit financially from being on the scheme.
If you are interested in discussing the matter further please contact us.
