VAT treatment question

VAT treatment question

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During a VAT visit, an officer of HMRC pointed out without going into detail that the supply of a farm tenancy was zero rated by default and not exempt as in other cases where there is no option to tax. Can any of the VAT experts point me to the particular provision in the VATA 1994 or elsewhere that this is recorded in statute. I have looked for an hour or so but with no luck, any help is appreciated as this is a new one on me and would like to be sure of both the correctness of the statement and any limitations to its potential benefit/drawbacks involved.

Regards

MtF

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By spidersong
02nd Aug 2012 09:28

I'll go out on a limb here...

...and say that you're unlikely to get many pointers.

I spent 16 years working for HMCE/HMRC in Suffolk, an area known for its rural economy, as both a visiting and technical enquiries officer, and currently I advise the one of the largest agricultural landlords in the county, and this is the first I've heard of it.

I've come accross three situations with regards to tenancies, 1) Exempt rights over land (Sch 9, Group 1, Item 1), 2) Taxable rights over land with an option (Schedule 10, Para 2), 3) outside the scope when the landlord is a Local Authority who have a duty to ensure adequate smallholding stock (so called County Farms) (EU Principle VAT Directive Article 13; I believe it's possibly now in the VAT Act following Royal Assent to a provision bringing it properly into UK Law, but I can't be bothered to look that up at the moment as it's not particularly relevant here).

Of course lots of things a farm do are zero rated as the production of food, and the poor chap may be viewing a tenancy as merely extended grazing rights which are zero rated as animal feeding stuffs (Sch 8, Group 1, Item 1). But even HMRC internal guidance mentions the transfer of land in a farming situation as exempt; see for instance VFOOD9950 which deals with the transfer of milk quotas and land (probably not the best reference in guidance but just the first I latched onto).

I can't see anything in the VAT legislation under farm/farmer/agriculture that would change my view. So unless he's found away to view a farming tenancy as a supply of food or new housing then I see no headings within Section 30 or Schedule 8 that would give effect to such an assertion, and no other statutory items to enact a zero rating outside that.

Maybe he's only seen tenancies transfered as a TOGC, however that would make it outside the scope again rather than zero rated anyway. So I know not of what he speaks!

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By eastangliantaxadvisor
02nd Aug 2012 09:48

You need to look at the farm tenancy agreement carefully!?

 

What is the farm tenancy agreement? Is it rent, or is it management of the farm, or the buying and selling of crops?

 

If it is rent, then it is the supply of land, and therefore will be exempt -  unless an option to tax applies.

 

If is is the supply of crops etc, then it will be zero rated.

 

There is also a table in VAT guidance notes that deal with share farming. This is below:-

 

Tabular version of the share farming diagram

THE LANDOWNERVAT position for landownerTHE CONTRACTORVAT position for contractorA Provides land.
B Maintains machines, hedges and ditches.
C Pays electricity charges.
D Pays water charges.
E Maintains insurance policies.Reclaims any input tax on these items.A Provides labour, machinery and supervision.
B Provides seeds, sprays, fertiliser and chemicals.Reclaims any input tax on these items.Charges 50% of costs of B, C, D and E.Declares output tax on B and C.
D = Zero-rated.
E= ExemptReimburses 50% of cost of B, C, D and E.Reclaims input tax as appropriate.Reimburses 50% of costs of B.Reclaims input tax.Charges 50% of costs of B.Charges output tax.Sells harvested crop.Declares output tax on whole sum if standard-rated.  Passed on 50% of proceeds.Outside the scope as a profit share.Receives 50% of sale proceeds.Outside the scope of VAT as a profit share.

 

 

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By mackthefork
02nd Aug 2012 23:28

Thats what I thought

Thank you very much for the replies.

MtF

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