For many people, owning a horse or pony is no different to owning a boat or a classic car for personal use or enjoyment with no taxation consequences. But there are rules of which horse owners and other related interests should be aware - and which could have tax implications.
Livery and the letting of loose boxes or grazing can be problem areas with regard to tax. There is a fine line between having one or a few spare loose boxes to rent and the provision of livery, where there may be more complex tax implications.
David McGeachy, Partner and VAT specialist with UK top 20 Chartered Accountants Saffery Champness, and a member of the firm’s Landed Estates and Rural Business Group says: "The VAT position for livery businesses is determined on the particular facts of each case, addressing both contracts with customers and the balance of services. These could cover grazing, stabling and ‘keep’ for example.
Grazing rights on their own can be zero rated as animal feed, and stabling can be exempt, but standard-rated if the stables in their own right have been opted to tax or are part of a larger holding that has been, while keep or care is standard rated.
HMRC guidance is not clear cut. For example for DIY livery, where there are elements of stabling and grazing but no keep, the official view is that there are two separate supplies at different VAT rates and the consideration can be apportioned. Where there is keep also then this is a single supply that is standard-rated with no apportionment. Businesses should be aware that after successes with wedding room hire HMRC has been looking more widely at exempt land services such as pitch fees. Should they find evidence that the customer receives other benefits along with the land, they are quick to suggest the service should be all standard rated."
There is still some uncertainty surrounding HMRC policy and VAT case law, and Saffery Champness advises that those supplying keep should maintain records for feedstuffs and unopted stabling in case there is an opportunity in the future to reclaim VAT overpaid on these.
Broadly the VAT position for those providing stabling, grazing or livery is as follows:
• The letting of a stable alone is exempt, subject to the option to tax.
• Stabling plus livery might be VAT exempt only if the stabling is the predominant element.
• DIY livery is two supplies (of zero rated feed and exempt or standard-rated stabling) and charges need to be appropriately apportioned.
• The supply of keep (or care or livery services) including stabling and feed is one standard-rated supply with no apportionment.
The receipt of such income will also be potentially liable for Income Tax and should be reported on the tax return of the appropriate individual or business, and there may also be Inheritance Tax implications.
David McGeachy says: "Where land is let to others to graze their horses then this income will potentially be liable to Income Tax. This may not increase your Income Tax burden significantly, but it may impact on other arrangements such as Inheritance Tax, particularly if the land is let or used as part of an agricultural holding.
Such property would normally be fully relievable for IHT but only if the property is used for agricultural purposes. Grazing by cattle or sheep would enable the land to qualify, but it is unlikely that horses grazing the land would. Be warned therefore that a little extra income now might add up to a costly capital tax bill in the future."
Certain other specific transactions may also be liable for Income Tax such as nomination fees for a stallion, While it may be possible to offset expenses against such fees and reduce them to nil for tax purposes, those expenses must be directly attributable to the generation of specific income and not towards the wider private use or enjoyment of the animal.
David McGeachy says: "The system is complex and there are a number of anomalies within it. We would therefore advise urge anyone with concerns about VAT or Income Tax in relation to equestrian issues to seek advice from their professional advisor."
