Q. I am thinking of purchasing a new vehicle for my business – what do I need to consider?
A. The VAT rules for reclaiming VAT on vehicles can be confusing and will depend upon the type and specification of the vehicle. HMRC does not allow VAT recovery on cars (unless they are 100% used for business such as a pool car; this is a difficult criterion to meet). VAT can be reclaimed in full on commercial vehicles provided there is only very limited private use (perhaps less than 5%, or a handful of trips a year). If private use is any greater than that, then some VAT should be disallowed.
Q. But what is classed as commercial, there are so many variations?
A. There are! A van is a commercial vehicle regardless of shape or size. A double cab pick-up can be classed as a commercial vehicle when capable of carrying a 1 tonne payload. A car-derived van on the other hand will look like a car from the outside but will function like a van on the inside – there must not be any rear seats or seat fixings, any side windows must be opaque and fixed, and there must be a payload area with floor panel in the rear.
Q. The dealer tells me that VAT is recoverable?
A. That might be so, however the devil is in the detail so it’s always worth checking before committing to the purchase.
Q. Will I receive a penalty if I file my repayment VAT return late?
A. On 1 January 2023, HMRC introduced two new penalty schemes – one for late filing and one for overdue payment. Before 1 January 2023, if a repayment return was filed late HMRC could not issue a default surcharge (as default surcharges could only be charged on amounts due to HMRC). As of 1 January 2023, the late filing of a repayment return will incur a penalty point. Fines of £200 per late return will then be issued by HMRC upon reaching your penalty point threshold.
Q. I am considering using my land to generate new diversified income, will there be any VAT implications?
A. With an increase in uncertainty and financial pressure on farmers, innovation and diversification has never been so important. Farming businesses intending to use their land to generate new diversified income will need to identify the nature and the VAT treatment of the supplies it will make and consider the impact on future VAT recovery. Some common examples of diversification include furnished holiday lettings, milk vending machines, campsites, renewable energy, and letting out a cottage on the farm.
Whilst many of these may generate further taxable income, the receipt of any exempt income (such as the income from letting out a cottage as someone’s main residence) could lead to a restriction in the amount of VAT reclaimable. This is a particularly important consideration when, for example, a residential property is under renovation as it may not be possible to automatically reclaim all the VAT on those costs. Always explore VAT implications before starting your new diversification journey.
Q. I have recently opted to tax my land but have not received anything in writing from HMRC, should I be worried?
A. From 1 February 2023, HMRC stopped acknowledging option to tax notifications. Opting to tax is a two-stage process – firstly making the decision to opt to tax, and secondly making the correct notification to HMRC within 30 days of the decision being made. Permission to opt is not normally needed. Making a valid option to tax is critical in most commercial transactions. It is therefore imperative that once submitted, this signed document (and related information) is retained alongside the automated email response from HMRC (this will act as HMRC acknowledgement).
Q. Is this still the case if the option to tax was not submitted within 30 days?
A. No. HMRC may require additional information and written confirmations before accepting the effective date of the option to tax. In this case, we would expect HMRC to confirm the option to tax in writing.
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