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VAT & farm diversification

By Ensors Team
21st Jun 2021

There is no doubt that many farmers are currently considering ways they can diversify to mitigate the loss of BPS. How this may interact with your existing farming business can seem overwhelming. There are many taxes to consider, but one of the taxes that can often be overlooked is VAT.

If a new venture is to form part of the current farming business, the existing VAT registration is retained and this will cover the new activity. If, however, the new venture involves exempt supplies (e.g. DIY livery or the letting of farm buildings) you will need to consider the complex Partial Exemption rules which could involve a loss of recoverable VAT to the entity as a whole.

If the new venture is a separate entity you may require a separate, new VAT registration. In this case you will be able to reclaim VAT on goods related to the new venture purchased up to four years prior to registration (up to six months for services) on your first VAT Return.

The key point to note is that VAT registration covers all activities undertaken by that VAT registered entity, be it sole trade, partnership or limited company etc and any form of artificial separation of an activity should be avoided

If the diversification involves the rental of commercial property, you should consider whether it may be beneficial to opt to tax (OTT) the property. As such, any rents received would be subject to VAT, but you would be able to recover VAT on any related costs. Costs could be significant if, for example, a redundant farm building was being converted to be let.

Another important area to consider that is often overlooked is that any letting of space, whether this be a building or storage container, must be charged subject to VAT.

This is by no means an exhaustive list of VAT implications, and of course, there will be many other tax considerations. It is important to seek professional advice early on to ensure the necessary structures are in place within the relevant time frames.

For more information, contact the Ensors Agricultural team.