Ejected Farmers Could Be Entitled To Compensation

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Farmers who HMRC have ejected from the Agricultural Flat-Rate Scheme (AFRS) may be entitled to a repayment or compensation.

An opinion from the advocate general to the European Court of Justice has led to the belief that many who feel they have been unfairly removed from the VAT simplification scheme may be able to make compensation claims or ask to re-join the scheme.

The AFRS is a simplified scheme under which farmers with qualifying agricultural forestry or fishing activities do not have to submit VAT returns. Instead they receive a flat rate compensation of 4% on the value of their sales. It is thought to be used by several hundred UK farmers.

In some years some farmers will gain a net benefit and in other years they may suffer a net loss. HMRC take it upon themselves to withdraw farmers’ AFRS certificates if the compensation they receive from the scheme results in a farmers gaining a greater benefit than he would under a normal VAT registration.

The opinion of the advocate general felt that farmers cannot be excluded for reasons other than specified under the European VAT directive. Instead it could be deemed that the withdrawing of certificates is an indication that HMRC are failing to properly implement and regulate the scheme.

While the European Court does not always agree with the opinions of its advocate generals, if it were to do so in this case, many farmers wrongly removed from the scheme would be entitled to a VAT refund or some other form of compensation.

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

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.

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.

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.

The Farmhouse – Not Just Where The Farmer Lives!

Traditional farmhouse in the North York Moors, Yorkshire, UK.

They say an Englishman’s home is his castle, but in the case of a farmer, his home is usually more of a business centre.

The Farmhouse is an essential part of any farm operation, serving as an office, a store, a boardroom, a make-shift veterinary clinic as well as a works canteen and restroom.  As a result HMRC acknowledge the uniqueness of the nature of a farmer’s expenditure in maintaining his home, and accepts a portion can be claimed as allowable business costs.

Normal practice is to include the full amount of the premises costs (such as council tax, water, light and heat, insurance and repairs) in a farmer’s accounts, with a portion added back in the tax computation.  This would, generally speaking, be between three quarters and two thirds. The amount can be agreed between the farmer and his accountant, and is dependent on lifestyle and farm activity, but it is unusual for HMRC to challenge a private use adjustment in this range.

The same principle applies to claiming input VAT on farmhouse expenditure, with an agreed portion being excluded from the relevant claim.  This can be a little more complicated as it can be difficult to justify restricting the same amount on, say, a repair to a bedroom as on repairs to the roof.

Where there is a partnership, with one or more partner occupying separate farmhouses, it can be difficult to argue that both act as business centres for the farm.  However, where the farm is a large concern or there are several enterprises operated by the partnership, a claim for expenditure on more than one farmhouse could be justified.  Again this is something the partners would need to discuss with their accountant.

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

Main Residence Nil Rate Band (RNRB)

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The introduction of the Main Residence Nil Rate Band (RNRB) may have a substantial impact on Inheritance Tax Planning and how farmers pass on their assets, possibly tax-free.

The new allowance is due to be introduce by April 2017 at an initial threshold of £100,000 which will rise to £175,000 by April 2020. This threshold is per individual and it will also be possible to transfer the allowance between married couples and civil partners.

The RNRB is in addition to the existing Nil Rate Band of £325,000 which is the current allowance available on the estate of each individual, the main difference being that the RNRB is tied in to residential property.

The RNRB allows complete relief from Inheritance Tax up to the threshold on a house lived in by the deceased at any time, provided that the house is given to a direct descendant such as a child, grandchild etc. or a spouse,  and that the net value of the estate at the date of death is £2m or lower.

With timely Inheritance Tax Planning, this new band could offer more flexible relief for those wishing to take a step back from active farming and where other avenues of tax relief, such as Agricultural Property Relief and Business Property Relief, have more restrictions or may not apply.

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

Image courtesy of Clare Bloomfield at FreeDigitalPhotos.net

HMRC Warns Farmers To Declare Subsidies On Tax Returns

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Farmers claiming the BPS are being reminded by HM Revenue & Customs that these support payments must be included on their tax returns to avoid possible fines.

Several farmers have been written to by HMRC reminding them that subsidies are taxable and need to be declared on tax returns.

Some may be worried by the letters, whereas in most cases BPS payments have already been included on the returns. Fines for not declaring income can be up to 60% plus interest, so if you are in any doubt, it is worth asking an accountant to check for you.

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

Image courtesy of adamr at FreeDigitalPhotos.net

 

Farmers Averaging Election Success

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We are delighted that lobbying on the proposed extension of Farmers’ Averaging Elections from 2 years to 5 years has paid dividends. It was announced in the budget that farmers will have the option of either 2 year or 5 year averaging.

We were very worried that the initial proposal to only allow 5 year averaging would have made the system almost unworkable and rarely useful.

The system of 2 years Averaging Elections saves our Farming clients around £100,000 in tax every year so this would have been a big loss particularly in these difficult times.

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

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Farmers Now Have Time To Pay

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HMRC have recently announced they will extend their “Time To Pay” scheme to include sheep and dairy farmers.  The scheme allows tax payers who are stretched financially to spread their payments over an agreed extended period of time.  Acceptance of different terms for payment is not guaranteed to applicants, however, as each case is looked at individually and the outcome totally at the discretion of HMRC.

The news comes after considerable effort on the part of the FUW and the Dairy Producers Committee who have been urging HMRC to consider permitting farmers into the scheme.  Representatives say that the move will help farmers to meet their tax liabilities without putting undue pressure on their already constrained cash flows.  Both the dairy and sheep sectors of the industry have been heavily hit by falling milk and lamb prices , delays in CAP payments and the continued Russian embargo on imports from the EU,  This, at least, will go some way to easing their situation.

If you are having difficulty paying your tax bill, contact HMRC Business Payments Support on 0300 200 2805 to see if you can be considered for extended terms under a Time to Pay agreement.

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

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You Are Being Watched

Did you know HMRC is keeping a watchful eye on your financial life?

Using a software application called “Connect”, the taxman is able to liaise with other sources of information to keep a check on your money, where it comes from and what you do with it.  These sources of data include banks (both here and in the EU), Land Registry, Companies House and social media.  DVLA is also a partner and can pass over details of the vehicles you own, so that HMRC can make a judgement on whether your lifestyle is compatible with your wealth – or lack of it!  Even an overview of photos and comments published on social media sites can give the Inspector cause for concern if he suspects you are not living within your declared means.

The scheme is designed to identify potential tax dodgers and recoup some of the estimated £100billion lost by the Treasury every year due to fraud and non-compliant behaviour by both individuals and businesses.  It is estimated that over £4billion has been collected since 2010 as a result of criminal investigations initiated by HMRC under the scheme.

In the majority of cases the taxman will write to the taxpayer, suggesting that the information on their self-assessment return is wrong with an invitation to correct the data – and a quick resolution can then be achieved – sometimes without penalty.  Likewise voluntary disclosures made before any formal proceedings are instigated are considered sympathetically when it comes to issuing penalties.

If however, the taxpayer is not co-operative, a full enquiry will be launched and, particularly if the tax loss is likely to be considerable, a criminal investigation will ensue.

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

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