A couple standing in a field for a wedding© Darren Greenwood/Design Pics Inc/REX/Shutterstock

Farmers hiring out their land and buildings for wedding ceremonies and events may have to pay thousands in unpaid tax following a failed VAT appeal last month.

Blue Chip Hotels failed to overturn a ruling forcing it to pay HMRC more than £50,000 of unpaid VAT, said accountancy firm Saffery Champness.

The company had not charged VAT as it did not offer room hire for civil wedding ceremonies as part of a package. It therefore believed the income qualified as a tax-exempt “passive renting of a room”.

See also: Business Clinic: Tax advice for holiday let barn conversion

But the Upper Tribunal – the forum responsible for resolving VAT issues – ruled that to meet wedding licence regulations the hire cannot be passive.

Hire regulations

As a result, farmers should consider all organised events held on their property, such as wedding receptions or concerts held in buildings or on grounds, to be liable for VAT, said David McGeachy, partner with Saffery Champness and head of VAT.

“This is no surprise given the direction of travel we have seen on the hire of land, rooms and buildings for weddings and organised events over the last few years,” he said.

“This case now clearly demonstrates that the hire of any room for such purposes is unlikely ever to be VAT exempt when there is a number of regulations that a responsible commercial provider is required to meet.”

Mr McGeachy said some farmers will have decided to voluntarily “opt in” to pay VAT to claim the tax back on extensive building renovations, and will not be affected by the ruling if they have already been including VAT on the hire charge.

The significant proportion of farmers who will not have volunteered to do so and therefore will not be charging VAT will be liable to pay up to four years’ worth of back tax if HMRC challenges their tax return.

He added that the hire of a room for meetings and conferences is still exempt but it will only be a matter of time before the HMRC corrects this anomaly.

What should you do if you are offering your property for hire

  • Check whether you have voluntarily opted in to pay VAT on the business, or that the business automatically qualifies for VAT because annual turnover exceeds £85,000. You will need to opt in if you plan to continue offering room hire.
  • Review what you are offering as part of the hire – any additional services such as special furnishing or catering is likely to qualify. 
  • Be proactive and check with an adviser – if challenged by the HMRC, you will be at risk for up to four years of backdated VAT.
  • Businesses registered for VAT will be able to offset this against their costs, reducing their overall tax liability.