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Reclaiming VAT on Farmhouse Repairs

Reclaiming VAT on Farmhouse Repairs

Author: Elin Ludgate, Senior Agricultural Pod Leader at LHP

Can I reclaim the VAT on expenditure spent repairing the farmhouse and the farm workers’ cottage?

Farmers who are dealing with their own VAT may be losing out on input VAT claims.

Farmhouse

HMRC accepts that farmhouses are an integral part of the farm business itself as farmers need to be available to attend to the livestock and safeguard farm buildings or equipment. However, a farmhouse also provides domestic accommodation for the farmer and his family therefore an apportionment needs to be considered for the claim of input tax in respect of the farmhouse.

HMRC accepts claiming 70% of the input VAT incurred on the work done in cases where the following conditions are met:

  1. The building is a typical working farmhouse
  2. The business is a full-time farming activity
  3. The work done is repair and maintenance of the farmhouse

Consideration must also be given to the nature and use of the work undertaken e.g., you would be unable to claim VAT on works relating to areas which are wholly private – bedrooms, etc.

In any other cases, where either:

  • Farming is only a part-time activity
  • The work done is an extension or alteration

HMRC will consider each on a case-by-case basis, however in accordance with their guidance, the reclaim would be anywhere between 40% and 70%.

Farmworker cottage

If you are providing domestic accommodation to an employee to make running the business easier, any repair and maintenance costs to the farmworker’s cottage is a cost that is wholly for business purposes. Where the accommodation is provided to the farmworker free of rent, 100% of input VAT on expenses can be reclaimed. This does not apply if the farmworker is a relative of the business owner.

If a small rent is charged to the farmworker, the income is exempt from VAT, however the input VAT should then be included in the partial exemption calculation.

Reference: https://www.gov.uk/hmrc-internal-manuals/vat-input-tax/vit41800

Let’s Talk

For help with any aspect of your business finances, please don’t hesitate to get in touch. Our agricultural specialists can talk you through your available options, and with over 85 years’ experience you are in safe hands with LHP. Let’s Talk.

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