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HMRC internal manual

VAT Agricultural Flat Rate Scheme

Farmers with non-farming activities

Non-farming activities below VAT registration threshold If the taxable turnover of the non-farming part of the business is below the VAT registration threshold, the farmer may deregister and join the scheme. The farmer does not have to charge VAT on the non-farming activities, but the flat rate addition cannot be charged on these supplies because they are not designated activities.

Non-farming activities above the VAT registration thresholdIf the level of non-farming activities is above the VAT registration threshold, the farmer must remain registered for VAT and will not be eligible to join the scheme unless:

  • the non-farming activities are zero-rated, in which case the farmer may ask for exemption from registration and join the scheme; if exemption from registration is to be allowed, follow the directions in VATAFRS1800; or
  • the farmer separates his farming and non-farming activities into two separate businesses. In this case the non-farming part of the business will have to register for VAT and the farming business may join the scheme. If a farmer intends to split the business in this way, each part of the business must be run by different legal entities. For example, a farmer may run his farming activities as a sole proprietor, and run a bed and breakfast business in partnership with another person. The bed and breakfast partnership may register for VAT and the sole proprietor farmer may join the scheme.

Note: If the business is split, input tax for goods and services bought for the farming business cannot be reclaimed through the VAT-registered business. But the farmer may sometimes buy machinery or equipment which has a dual purpose and will be used by both businesses. In such cases, the farmer is only allowed to reclaim the proportion of VAT proper to the use of the equipment by the VAT-registered business.

Where a farmer does split his activities into VAT-registered and scheme supplies you should be aware of the possibility of disaggregation(This content has been withheld because of exemptions in the Freedom of Information Act 2000) .