VAT registration scheme for racehorse owners: accounting for output tax by racehorse owners
Output tax is the VAT a registered business must charge and account for on the taxable supplies of goods and services it makes in the course of its business. If an owner is registered under the scheme it must account for output tax in the ways described in this section of the manual.
All sponsorship income is standard rated. An owner must account for output tax on this income.
Prize money and appearance money
An owner must account for output tax on this income.
Prize money and appearance money is treated as consideration for a standard rated supply when received by owners registered under the Scheme. These payments are distributed by Weatherbys. They are shown on a monthly statement known as a ‘Transaction Analysis Summary’ which is sent to all owners.
Under approved self-billing arrangements Weatherbys includes the VAT due on prize money (other than the refund of stakes and entry fees) and appearance money where they have been notified of the owner’s VAT registration number.
VAT will not be included where an owner has failed to notify their registration number to Weatherbys. Nevertheless a registered owner must still account for VAT on a tax inclusive basis on the payments received.
However, it is understood that Weatherbys will accept belated applications for payment of VAT where the owner provides details of their registration.
VAT staff should make a submission setting out all the facts to VAT Advisory Team if an owner disputes an assessment issued in respect of prize money. Once approved by the HMRC line manager the submission should be sent via EF to the VAT Advisory Team in line with the guidance set out in Indirect Tax – Getting advice about VAT and IPT.
The value of prize money for VAT purposes is the amount calculated under the Rules of Racing as receivable by the owner less entry fees or other expenses collected by the racecourse.
Sale of racehorses
This is a standard rated supply if the sale is in the UK. Otherwise the normal place of supply rules will apply. More guidance on this can be found in VATPOSG Place of Supply -Goods
Sale of a share or shares in a racehorse
The sale of a share or shares in a racehorse is a taxable supply.
However, where a VAT registered person:
- buys a racehorse;
- sells a share or shares in it; and
- becomes a partner in a new registration
they are not required to account for VAT on their retained share.
What if no VAT was charged on the purchase price?
If an owner was not charged VAT on the purchase they may use the special margin scheme for second hand goods. This allows them to account for VAT on the profit margin rather than the full selling price. More information about the margin scheme is at Notice 718 The VAT Margin Scheme and global accounting
Racehorses given away or put to non-business use
Output tax is due on racehorses that are given away or put to a non-business use. The value for VAT purposes is what the horse would cost at the time of its disposal taking into account its fitness, health and other relevant factors. If an owner is not sure of the open market value they should ask a bloodstock agent for a valuation.
If, based on the past history of the horse, HMRC considers the valuation placed on it to be low, we will normally ask the owner to explain how they arrived at the figure. If we are not satisfied with the explanation we will normally ask the owner if they hold an independent valuation for the racehorse or ask to see insurance details, either of which may provide a basis to determine the value.
Qualifying point-to-point horses
A qualifying point-to-point horse is one for which an owner has a sponsorship agreement and which is entered in a hunter chase.
Please note that:
- an owner must charge VAT on the sale of a qualifying horse if they bred the horse and recovered VAT on the breeding cost;
- no VAT is due on the sale of a non-qualifying horse if no VAT has been recovered in respect of it;
- if the horse stops being a qualifying horse, perhaps because it is put to a permanent non-business use, the owner must account for out put tax but only on 50% of the open market value.