It has been agreed by HM Revenue & Customs (HMRC) for several years now, to allow 70% of input VAT to be reclaimed on expenditure related to a farmhouse provided the following conditions are met:

  • The property must be a typical working farmhouse
  • The business must be that of a full-time farming activity
  • The work done must be in repair and/or maintenance of the farmhouse

Where farming is not the full-time activity of the business, or the farmhouse would be considered primarily a family home rather than a working farmhouse, the 70% allowance would not be applicable.

Where this could be misconstrued is when the work done is deemed to be an alteration, extension or improvement in nature, and HMRC would review these circumstances on a case by case basis. In the majority of such cases, HMRC would generally not allow the business to reclaim more than 40% of the VAT on the expenditure. For example, if there is work done to extend a property, and the extension created office space which would otherwise not be available for the farming business, the 70% VAT reclaim would be considered appropriate. However if the extension created additional bedrooms and hence no additional benefits for the farming business, the percentage of VAT that could be reclaimed is likely to be low.

The same rules apply for farm cottages as long as these are occupied by someone who works at the farming business full-time and the occupier is not charged rent for living there. If a cottage is part-owned by a full-time worker, there will be restrictions on the amount of VAT you are able to reclaim, which would again likely be treated on a case by case basis.

VAT Fuel Scale Charges

VAT Fuel Scale Charges (FSC) are used to work out how much VAT on fuel you should pay back if you use a business car for private purposes. This excludes commercial vehicles, such as pick ups, where the VAT can usually be reclaimed in full. If using the FSC, you should reclaim the VAT on all fuel purchases and put the FSC adjustment through on each VAT return period.

The FSC is calculated based on the CO2 emissions of your vehicle and you can generate your FSC here. It will take you through three short questions:

  • Which period do you want to calculate the FSC for? (e.g. 2016/17, 2017/18)
  • What accounting period would you like to calculate it for? (e.g. monthly or quarterly depending on the frequency of your VAT returns)
  • What is your car’s CO2 emissions band? (This is found in your vehicle log book or can be checked online here )

The FSC is generated and it is the VAT element which should be used as the overall adjustment. You should increase box 1 on your VAT return by the VAT amount and box 6 by the ‘basic charge’. This may have to be a manual adjustment, or if you have an accounting package there may be a function you can use to post the adjustment. In accounting terms, your motor expenses increase by the VAT element of the FSC.

However, you should always assess whether it is worthwhile to put through the FSC. For example, if the VAT being reclaimed on fuel each VAT period is less than the VAT charged on the FSC itself, it would not be beneficial to use, and you should instead not reclaim any of the VAT on the fuel purchased.

If you want to discuss any of the points raised in this blog please get in touch with me:

01738 441 888

The information in this blog should not be regarded as financial advice.  This is based on our understanding in September 2017. Laws and tax rules may change.