Tax & Farm Diversification Sector Considerations
Author: Lisa Oliver (FCCA), LHP Associate and Farming Specialist
In our recent farm diversification blog we looked at some of the ways farmers could diversify, such as property rental, tourism activities or contract or organic farming. In this blog we go on to outline some of the possible tax implications of these common diversification methods by sector and service.
Property – rentals
Income from rental properties is classed as an exempt supply for VAT purposes, which will make your farming business a ‘partially exempt’ business. VAT incurred on expenses in relation to these rental properties can only be reclaimed if below the de-minimis limit of £7,500 per year and below 50% of the total input VAT. When the property is in need of significant repair, or a number of properties need substantial repairs at the same time, it may not be possible to reclaim all of the VAT, unlike VAT claims for repairs on your farmhouse. There can also be restrictions on reclaiming of VAT on building conversion costs, or the project may be eligible for a reduced VAT rate.
Tourism – camping and caravan sites
Income from camping, glamping and caravan are standard rated supplies for VAT purposes, being 20%, which will be an additional cost to your customers, or will have to be absorbed by the business. Any VAT recovery may require a ‘private use adjustment’ for facilities you provide if they are also used by yourself. For example, a swimming pool or buggies on your campsite you use alongside visitors.
Retail – the farm shop & café
If you decide to open up a farm shop and café, you will need to be aware of the differing rates of VAT that apply to types of food and drink, in particular those you are planning to sell at your farm shop. For example, there’s zero VAT for vegetables and standard VAT for confectionery and food served from your café if consumed on premises including outside seating. However, VAT may be ‘zero rated’ if the food is cold and taken away by the customer.
Capital Tax implications
Diversifying could mean any associated assets would not attract Agricultural Property Relief (APR) but they might attract relief at between 50% and 100% under business property relief (BPR). It is very important to discuss this with your accountant prior to conversion.
Another consideration is if you need to employ more staff to run your farm diversification, as well as increasing staff costs, this also increases employer National Insurance and pension contributions payable under automatic enrolment.
There’s a lot to consider here – we advise you speak to a finance specialist before embarking on any sector considerations when diversifying on your farm.
Speak to our team of farming specialists at LHP who can assess likely tax implications and help you make well-informed decisions on your farm diversification. Let’s Talk.