Business Clinic: Can I recover VAT on farmhouse expenditure?

Whether it’s a legal, tax, insurance, management or land issue, Farmers Weekly’s experts can help.

Here, Liz Jones, a partner with Baldwins, addresses the issue of reclaiming VAT on farmhouse expenditure.

Q. Can I recover VAT on farmhouse expenditure?

A. Where a farming business incurs expenditure on repairs relating specifically to the farmhouse itself (rather than the farm generally), there is often some confusion as to whether any of the VAT incurred on these costs can be reclaimed. 

This is because the farmhouse generally doubles up as the home of the farmer and his family (a private function), but it is also the place where the business is run from with the office often located in the house, business meetings held there and day-to-day decision-making taking place. All of these can be considered a business purpose.

See also: Plant and machinery capital allowances advice

As such, when expenditure is incurred on repairs to the farmhouse, there will clearly be both a private element of these costs, and also a business element – giving rise to the option of reclaiming some of the VAT through the farm VAT registration.  

Mistakes are often made, however, when deciding how much to reclaim. Some will claim 100% – which is incorrect as it does not make any allowance for the private use of the farmhouse.

However, others will not reclaim any – which is also incorrect as it does not allow for the business use of the property.  

Given that it is very difficult to ascertain the accurate split between business and private use, the NFU agreed standard apportionments with HMRC many years ago and these allocations are still used now. 

For a full-time working farmer, HMRC will accept a claim of somewhere between 40% and 70% of the input VAT, depending upon the size and scale of the farmhouse in relation to the size of the farm. 

Every case will turn on the individual circumstances. However, for example, someone with a large country house on a relatively small acreage could expect to be able to claim closer to the 40% end of the range.

A claim for a traditional farmhouse located close to or with the farm buildings and on a larger, more appropriate acreage would probably be closer to the 70% allowance.   

For a part-time farmer however, the reclaim is limited to a maximum of 40%.

Are you, like many other farms, missing out on tax claims for R&D?

If you’re a limited company, you could be eligible for tax credits if you’re carrying out R&D on your farm. For more information and to find out if you’re eligible visit our R&D tax credits page.

Find out more