Is Your Farm or Agritourism Business Missing Out on Valuable Tax Relief?
As more farms diversify into holiday lets, glamping sites, farm shops and visitor attractions, many business owners ask whether the new venture should be run as a separate business.
A separate business structure can sometimes make commercial sense, however, creating a new entity with the primary purpose of creating a VAT advantage can carry significant risk.
HMRC has powers to challenge arrangements where it believes businesses have been artificially separated to keep turnover below the VAT registration threshold. You should expect HMRC take a close interest in business structures where multiple entities operate alongside one another.
Azets – Scottish Agritourism Trade Members
When reviewing an arrangement, HMRC may consider factors such as ownership, management, staffing, premises, finances and how the businesses operate on a day-to-day basis. As a result, it is not uncommon for HMRC to conclude that businesses which appear separate are, in reality, operating as a single entity for VAT purposes.
This issue commonly arises where a farming business operates holiday accommodation, a farm café/shop or a glamping site through a separate partnership, sole trade or company. While separation may be appropriate in some cases, it is important that the arrangements reflect commercial reality and are not simply a mechanism to avoid VAT.
If HMRC successfully challenges a structure, the consequences can be costly. Businesses may face retrospective VAT assessments, interest and potentially penalties, creating unexpected liabilities for a growing enterprise.
The right structure will depend on your individual circumstances, future plans and expected turnover. Before setting up a new agritourism venture, it is worth taking professional advice to ensure the business is structured appropriately from the outset.
A little planning at the beginning can help avoid expensive surprises further down the road.