By Farmers Weekly staff
FARMERS who improve property with a view to letting or selling must monitor their VAT position carefully or risk losing thousands of pounds.
A partial exemption allows farmers to recover VAT on expenses relating to refurbishment of residential properties or sales of property of up to 42,000 a year.
That equates to about 7500 in tax, says Carlton Collister of accountant Grant Thornton.
Often, that is enough. Most farmers in an average year can recover all VAT.
“It is where as now farmers are looking to maximise returns that 42,000 can become critical. It does not take much when converting or refurbishing a property to go over that amount.
That is an expensive mistake, he warns. You do not just lose the allowance on the amount you go over by, you lose all the allowance.
There are several ways to avoid this, says Mr Collister:
- Agree with suppliers that work attracting VAT is done over more than one VAT year (which normally runs until 31 March).
- Use the farms own labour.
- Consider waiving VAT exemption on sale or letting on commercial property. An election to charge VAT has to be made in advance.
- Consider letting residential property as furnished holiday accommodation, or using it for an employee, in the short term to allow full VAT recovery.