HMRC internal manual

VAT Agricultural Flat Rate Scheme

Appendices: Consideration of applications

You should check the other guidance available on GOV.UK from HMRC as Brexit updates to those pages are being prioritised before manuals.

VATAFRS0215 explains the context of this page.

The responsibility for approving applications is a matter for local management to decide; but the allocation of this task, and the development of suitable management checks, must provide assurance that all aspects of eligibility are properly considered before applications are approved.

Before the application is approved, you must be satisfied that the trader is entitled to join the scheme. For each application, please make the checks described at items 1 to 4 below.

1. Qualifying activities

Check that the business activity given at box 3 of the form qualifies under the scheme (designated activities are listed at VATAFRS2400). If the activities do not qualify, refuse the application. Remember, services alone do not qualify.

2. Non-farming activities

Check the value of non-farming activities given at box 5 of the form. If 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; or
  • the farmer separates their farming and non-farming activities into two separate businesses. In this case, the non-farming part of the business will register for VAT, and the farming business may deregister and join the scheme. If a farmer intends to split the business in this way, each part of the business must be run by a different legal entity. For example, a farmer may run their 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 deregister to join the scheme.

3. Offences/Penalties

Check whether the trader has been subject to any offence / penalty action under the Customs and Excise Management Act (CEMA) 1979 Section 152, or the VAT Act 1994 Section 60, during the last 3 years. If so, the trader will not be eligible to join the scheme and the application should be refused.

4. VAT-registered traders

If the trader has given a VAT registration number at box 7, there are two further points to consider:

  • assessment of possible gain - follow the guidance in VATAFRS1600, which explains how to calculate possible gain under the scheme; and
  • if the application is approved, the trader’s VAT registration must be cancelled. This is explained in VATAFRS1900.

5. Action

If, after considering all the points in this table, you are satisfied that:

  • the farmer is entitled to join the scheme - follow the guidance in VATAFRS1800;
  • the application should be refused - follow the guidance in VATAFRS1700.