HMRC Not So Merry With Wedding Venues

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Farmers hiring out land and buildings for wedding ceremonies may have to pay back thousands in back tax following a failed VAT appeal earlier this year.

Blue Chip Hotels failed in their appeal to overturn more than £50,000 in VAT. The company argued that, as it didn’t offer room hire for civil wedding ceremonies as part of its package, VAT was not due.

However the upper tribunal ruled that, to meet wedding license regulations, the hire would not qualify as tax exempt ‘passive renting of a room’ and would therefore be liable to VAT for the whole amount, totalling more than £50,000.

The case demonstrates that the hire of any room for similar purposes is unlikely to be VAT exempt when there are a number of regulations that a commercial provider is required to meet.

It also raises a number of considerations for farmers planning organised events on their property such as wedding receptions, or concerts held on their grounds. If HMRC challenge a VAT return, farmers could be liable to pay up to four years’ worth of back tax.

If you have any queries it is always best to check with your adviser. Green & Co have a dedicated VAT department who can advise on a whole range of VAT matters. To speak with one of the team contact us on 01633 871122.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Last Chance for Welsh Dairy Farmers

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Dairy farmers in Wales have until this Friday to apply for an aid scheme worth £1,800.

The EU Conditional Aid Scheme is only open to dairy farmers in Wales and, specifically, those that were in milk production with a supply contract on 1 January 2016.

To qualify before the deadline at midnight on Friday 30 June, producers need to complete an online questionnaire with information about their farm business. In return, farmers will receive the payment by the end of September as well as a report, prepared by the Agriculture and Horticulture Development Board (AHDB), identifying business strengths and weaknesses and a comparison against industry performance indicators.

The link for the questionnaire as well as more information can be found on the AHDB website.

Farms with land falling outside of Wales can still participate in the scheme if the majority of the land is in Wales.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Tax Allowances for Caravans Used in the Business

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You can claim tax relief, known as capital allowances, for plant and machinery that you keep to use in your business. Assuming all criteria are met, the cost of items such as tools, equipment, desks and computers can be offset against profits in the year in which they are incurred. This is subject to the annual investment allowance which is currently £200,000.

You cannot however claim capital allowances for assets in or on which the business is carried out. This includes land, buildings and other related structures.

This distinction is important when determining whether capital allowances are available for something such as a caravan. Although a caravan would typically be considered an asset in which the business is carried out, if it is intended to be moved around in the course of the qualifying activity then there may be an opportunity to claim capital allowances. HMRC guidance, however, focuses on caravan sites so there is some ambiguity with regard to the use of caravans in other trades.

Somewhat by contrast, farmers can claim tax relief on a caravan used to house a farm employee, even if it occupies a fixed site and is used solely for residential purposes (which could make for a few happy campers). However, if you are going to make such a claim, it is advisable to check  with your tax advisors beforehand in regard to your specific circumstances.

If you have any questions or comments please contact Green & Co.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

 

Choosing the best structure for your farming business

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How do you know whether to choose a sole trade, partnership or limited company structure for your business? The changes in farming over recent years have made this question much more complicated. Many factors need to be taken in to consideration when making this decision.

Traditionally farms have been small family owned businesses which would usually best suit a partnership structure. Farm businesses have now developed and diversified into more complex businesses which may be more suited to incorporation. Some of the benefits of incorporation include:

  • Increased tax efficiency – by being able to receive income from both salary, dividend, rent and interest
  • Reduced risk – the business and all its liabilities can be separated from the owners assets which can reduce risk if anything goes wrong
  • Improved image – incorporation can help to convey a more professional image of the business
  • Increased flexibility – being able to sell equity allows limited companies to be flexible when raising investment and funding.

All these benefits can make incorporation appear a very attractive option; however it also has some disadvantages, such as: the cost of incorporation, the extra paperwork and administration and also having to meet greater compliance requirements.

As every farm business differs from the next it would be impossible to say what the best option would be for all farms. In this case one size does not fit all.

If you have any queries about business structures and your farming activities, please contact Green & Co.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

HMRC, The Dairy Farmer & The Disallowed Loss

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The recent case of B and R Scambler v HMRC (TC4842) reinforces HMRC’s refusal to accept farming loss claims where they deem that the farm is not being run on a commercial basis. And there are many cases of this nature going to Tribunal.

Assuming all criteria is satisfied, self-employment losses can be offset against other income received in the year. This is known as sideways loss relief and is available to Farmers.

This loss relief is unavailable however, where a farming business has made losses in five consecutive tax years, known quite succinctly as ‘the Five Year rule’. In this instance the farmer cannot offset losses incurred in the sixth or subsequent years until there is another profit, unless he can show that “a competent person carrying out the activities at the beginning of the prior period of loss could not have reasonably expected the activities to become profitable until after the end of the current tax year.”

Mr & Mrs Scambler, who made losses from 2005/06 through to 2010/11, could not identify a specific reason why profits could not be made during these years, despite running the business competently. Their claim that the milk price was unpredictable was not thought to be sufficient justification, and they were therefore denied sideways loss relief for 2010/11.

If you would like to discuss this further please contact Green & Co.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Fire Service Appeal To Farmers Planning Controlled Fires

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South Wales Fire and Rescue Service have advised farmers who are planning to ‘burn off’ their land, that they now have a dedicated Wildfire Station to assist them.

While the vast majority of these burnings are done under safe conditions, on limited occasions fires can become too large to manage or out of control with farmers having insufficient resources to deal with them. South Wales Fire and Rescue Service are actively looking to engage with local farmers and can offer advice and practical assistance by carrying out controlled burning for them.

If you would like assistance with controlled burning on your land, please contact the Fire Crime Unit on 0800 731 7287, where they will be able to direct you to the appropriate Station Commander.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Tax Relief for Farmhouse Renovations

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It is very likely that at some point your farmhouse and other buildings used in the farming business will require refurbishment, and it is important to be aware that whereas some repair expenditure can be relieved in the year it’s incurred (subject to a disallowed proportion for private use of buildings), alterations and improvements cannot. This is known as capital expenditure.

Repairs carried out which simply restate the building to its original condition are typically allowable as revenue expenditure. On the contrary the cost of replacing, improving or altering an asset is normally capital expenditure and can be relieved on disposal of the asset.

These rules extend to rental properties and in addition there are rules for rental properties purchased at below market value because they require extensive work in order to be habitable.

‘Capital versus revenue’ expenditure is a highly contentious issue and many cases have gone through the courts because HM Revenue & Customs and the taxpayer have disagreed over the tax treatment.

If you have any queries about taxes and the farming business please contact Green & Co.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Avian Flu Prevention Zone Consumes All of Wales

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After the recent confirmed case of Avian Influenza in Pontyberem, Carmarthenshire, NFU Cymru is reminding everyone keeping poultry, no matter the size of their flock, to remain vigilant.

There is a prevention zone across all of Wales which requires all keepers of poultry and other captive birds to keep them indoors, or at least to take practical measures to keep them separate and protected from wild birds. This has now been extended until the end of February.

Poultry farmers are being advised to continue to practice good bio-security and report any suspected cases to the Animal and Plant Health Agency.

It is worth reminding people that the risk to public health from the virus is very low and the Food Standards Agency has also made it clear that Avian Influenza does not pose a food safety risk for people.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Your Redundant Farm Building could be Restricting your Inheritance Tax Relief

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Agricultural Property Relief (APR), if obtained, allows an individual to pass on agricultural property, either in their Will or during their lifetime, free of Inheritance Tax (IHT).

Business Property Relief (BPR) reduces the IHT payable on a wider class of qualifying business assets when they are left in a Will or passed on during lifetime.

In order to qualify for APR farm buildings must be occupied for the purposes of agriculture – derelict buildings will not qualify for the relief. Similarly, if the property has not been used wholly or mainly for business purposes in the two years prior to the transfer, BPR will not be secured.

It’s important for all Farmers to consider their exposure to IHT and if farm diversification is currently being pursued, i.e. alternative uses of agricultural land and buildings, then it’s wise to act sooner rather than later.

If you would like further advice on Inheritance Tax please contact Green & Co on 01633 871122.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Tax Allowances on the Farm

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Certain plant and machinery can qualify for what’s known as Annual Investment Allowance (AIA), which allows businesses to claim for the cost of the new asset (up the specified threshold) in the year of purchase.

The current Annual Investment Allowance is £200,000 (in the year to 31 December 2015 the limit was £500,000) and it’s expected to stay at that level under the current Government. Plant and machinery that doesn’t qualify for AIAs can have writing down tax allowances of 18% or 8% (current year rates).

HMRC have accepted that silage clamps and slurry pits qualify as plant and machinery, which is of particular importance to farmers due to the Nitrate Vulnerable Zone Legislation.

There are many intricacies within this area of tax so it’s good practice to check with your tax adviser whether new assets or work qualify as plant and machinery in order to maximise AIAs.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.