Farming and Estate Diversification – VAT Issues

The last 10 years saw a marked change in the approach taken by HM Revenue & Customs (HMRC) to review businesses. Gone are the days where each farm business had a dedicated HMRC contact who knew the business and visited every couple of years.

Whilst many regard this as a blessing, less regular reviews can cause errors to build up. With HMRC now able to raise assessments for 4 years retrospectively, there is greater reliance on accountants and VAT advisers to ensure that there is no under-accounting for VAT on sales, or over-recovery of VAT on purchases. This also presents an opportunity to review your estate operations to maximise VAT recovery.

It is even more important in today’s climate, where farms and estates are increasingly diversifying by moving into non traditional areas such as renewables, sports and leisure, and property development. All of these diversification streams have varying VAT treatments both in terms of reduced rating available on costs, but also in terms of VAT recoverability and VAT on sales.

It is essential to consider the VAT implications of these changes and their impact on a rural business as early as possible. Our experience dictates that successful planning cannot be taken in isolation. A holistic perspective helps understand how each tax interrelates; for example VAT planning may present a tax advantage only to clash with a SDLT or direct tax liability of greater magnitude.

Chiene + Tait clients benefit from our rural estate expertise and our dedicated team of Scottish based VAT specialists. The team undertakes the same tests HMRC traditionally does, but also looks at diversification activities. They provide strategic guidance on how to maximise VAT recovery on expenditure and how to account for VAT correctly on income.

If you have a VAT query, get in touch with Iain Masterton, Chiene + Tait Senior VAT Manager at or call 0131 558 5800.