Farming families could be facing millions of pounds of extra tax bills in the face of a blitz on VAT on earnings from B&Bs and holiday cottages.

Revenue and Customs is increasingly interested in such income if it is treated separately from the farm business, say experts.

Anne Holt of accountants Grant Thornton said HMRC is “targeting” diversification, including B&B and cottage lets.

The liability can arise if, for example, a B&B enterprise and farm are not run and accounted for sufficiently separately.

If HMRC adds the two turnovers, they are likely together to top the £67,000 VAT registration threshold, leaving the B&B income subject to the 17.5% tax.

While some B&B businesses are set up – financially and organisationally – in a way that allows them to demonstrate “separateness” from the farm, many others will struggle to do this, warned Mrs Holt.

“In the past, farmers were not that exciting to Customs – they had bigger fish to fry and as a result they would not visit a farm business for years at a time. But nowadays, you’d be hard pushed to go to a farm and just find it farming. Other enterprises abound – and Customs have realised that.

“Suddenly, people are being hit by quite large assessments.”

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One landlady, who asked not to be named but offers B&B on the family livestock farm in East Anglia, told Farmers Weekly she could face a bill of “quite a few thousands” as a result of a more bullish approach.

“It’ll be a complete killer – there isn’t the margin to take the hit,” she said. “It’s like a stealth tax, it’s outrageous. We’re not the high earners of the world, it’s immoral to apply this to small businesses.”

Any new such liabilities would either hit incomes at a time when farming returns are falling or force B&B and self-catering providers to put their prices up, potentially pricing them out of market, warned Andy Woodward, chief executive of Farm Stay UK.

“This will make them uncompetitive in what is already an extremely competitive situation.

“This sounds like it’s happening across the country. It would appear to be our turn under the spotlight,” he said. “Government encourages diversification and then hammers people for tax.”

Critics of HMRC have dubbed the suggestion that VAT may also be reclaimed from previous years “heavy-handed” at a time when many small businesses are struggling.