Easier to qualify for the ‘sporting exemption’ from VAT

In recent times some shoots have been unexpectedly caught by HMRC where they have failed to charge their “members” VAT. This has come as a very nasty surprise and often makes an already unprofitable exercise in to something which is totally unaffordable.

VAT is charged on a “taxable supply”, and in this context, the right to shoot and take game, as well as making land available for shooting are considered taxable supplies. This latter point is important to understand from the landowner’s perspective, in that even if a landowner has not “opted to tax” his land and therefore does not have to charge VAT on rent, he will still have to charge VAT on the shooting rights leased to the shoot if the landowner is VAT registered.

VAT registration only becomes compulsory when the taxable turnover of a business, which may include a shoot, exceeds £81,000. Clearly this will only be relevant to larger enterprises but it is surprising how much running a shoot can cost. Up until 1st January this year, any shoot with a turnover in excess of the threshold which charged fees would need to register for VAT, unless it fell within a narrow exemption.

The exemption applies to supplies made by an ‘eligible body’ of sport-related services, but only where supplies are made to members of that eligible body. A shoot can fulfil the requirements of being an eligible body, provided it is non-profit making, and not subject to commercial influence.  

In this respect a syndicate whose members simply share the cost of running the shoot should fall within the exemption, but the water becomes muddy where the syndicate lets one or two days to guns who are not members of the shoot. This is common practice where the syndicate is looking to increase its income so as to reduce the cost of running the shoot, but the benefits of doing so will backfire if as a result the members have to be charged VAT on their membership fee at the rate of 20%.

If a shoot is being run on a commercial basis, letting days to corporate clients for example, charging VAT is understandable but it seems harsh that members of a syndicate of individuals, who are simply trying to cover the costs of their shooting activities, may also have to pay VAT.

However, from the 1st January it seems the rules have been simplified so as to make it easier to qualify for the ‘sporting exemption’ from VAT which now applies to all VAT-able supplies made by eligible bodies that enable participation in a sport, whether supplies are made to members or non members.

Having said that VAT is a complicated area of tax, particularly for Landed Estates where opting to tax land and the resultant partial exemption rules require careful consideration but at least in the context of a shooting syndicate, matters appear to have become a little more straightforward.  

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk

Farmers thinking twice about investing

With commodity prices falling many farmers will be thinking twice about making any significant investment in their farm but for some, with a bit of imaginative advice from your accountant it may be possible to use your pension fund to invest in a new farm building for example and in so doing cut the overall cost of such an investment.

For example Mike Butler, partner at Old Mill accountants who have recently moved to new offices in Wells, recently helped a Wiltshire based farming business save more than £180,000 on building a new grain store.

“The idea is that you use a self-invested pension to pay for the land and build costs,” he says. “That provides tax relief against profits of between 20-45%, depending on whether you trade as a company, sole trader or partner.”

Once built, the farm can then rent the grain store off the pension fund. The rent paid by the farming business will be a tax deductable expense, thereby saving income or corporation tax while the rent received by the pension fund can either be used to build up reserves in the fund or to pay off any borrowing which the fund may have taken out to support the cost of the project.

Obviously this only works if the underlying business is profitable and is therefore able to pay the rent but if this is the case, significant savings can be made. However, such a project requires careful planning to avoid any pitfalls. “Start planning well in advance to allow the financial planning team to register the pension fund, take care of invoicing and pricing, and ensure appropriate VAT is reclaimed in good time,” warns Mr Butler.

“You also need an exit plan in place to release the pension funds when you do come to retirement.” This can be done by selling the building on the open market, selling back to the farm business, or, ideally, to another pension fund set up by the younger generation.

But clearly some farm buildings, particularly if they are located in the heart of a farm building complex may be difficult to sell on the open market and so if selling in this manner is your chosen exit strategy, I would advise that you take care to ensure the building is suitably located so that it is saleable.

So if you are contemplating making a significant investment on your farm and also have an eye on your long term retirement plans I suggest you approach your accountant to investigate the potential available to you.

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk