Farm diversification and VAT

by Graham Page

As the rural community continues in its search for new, non-farming and diverse income sources, thought needs to be given to the VAT position of any new enterprises.

Many new diversified businesses will involve dealing with the public at consumer level rather than at a business to business level. Any addition of VAT to products or services could result in either those products or services becoming out priced. Alternatively, if VAT is absorbed by the diversified business, the financial returns reducing perhaps to the extent that the new business is not viable.

This is a typical problem for diversified rural businesses and VAT planning is key to a successful outcome.  VAT registered farmers don’t always appreciate that VAT will apply to all trade activities conducted by that business.  For example, a farming partnership that chooses to start a holiday letting business will have to charge VAT for that new activity from the outset.   The advantage of this situation is that it allows full VAT recovery of costs incurred in setting up a business.

It is commonplace for new activities to be separated from the farming business to circumvent the need for VAT registration for the enterprise providing its turnover remains below £85,000 pa.   It is vital however to avoid any kind of artificial separation of the new activity from the existing VAT registered business and this will extend to a different ownership and constitution, different bank accounts, ideally different premises and minimal shared facilities.

Planning is key to success in most aspects of business and VAT is no exception to this.

For further information contact Graham Page.

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Graham Page

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