Farmers, or those interested in farming, are being told to better understand the fine line between business and hobby farming, or HMRC could disagree and confusion ensue.
There is a fine line between business farming and hobby farming, says chartered accountants Saffery Champness, and a risk that anyone farming where there is any measure of doubt may find HMRC disagreeing with their own view.
David McGeachy, Partner and Head of VAT at Saffery Champness, says that any farming business owner needs to be certain of their own position.
He says: “No doubt there are people who see themselves as farmers who have chosen to take that route as a lifestyle choice. There are others who may have another job and only devote a part of their time to the farm. And there are those who don’t run the farm as a business or set out to make sales on any significant level at all.
“Recovery of VAT can be a critical test, and this will not be permitted if there is no direct correlation to the making of taxable supplies in 'furtherance of the business'.”
'Confusion'
'Furtherance of the business' can be encompassed by profit motive, continuity, organisation and seriousness/commitment to conducting a business activity.
Running such activity at a sustained or significant loss is unlikely to be compatible with generally recognised business principles.
David McGeachy continues: “The confusion can be exacerbated in the farming sector particularly because in farming generally there may be lengthy periods where very little income is generated, and the intention to make business sales is vital to permit VAT recovery.”
Where VAT registration occurs and VAT is claimed on costs/outgoings but there is little or no evidence of sales being generated, then HMRC may consider investigating that person's affairs.
