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HMRC internal manual

VAT Input Tax

Specific issues: farmhouses

We accept that farmhouses are an integral part of the farm business itself. Farmers need to be available at all times to attend to livestock and safeguard farm buildings or equipment.

The farmhouse also provides domestic accommodation for the farmer and his family. Therefore, there is a need to apportion between business and private use. Claims for input tax in respect of farm properties have generated the greatest number of appeals in respect of domestic accommodation.

A popular method of apportioning the business/private use of the general repair and maintenance of farm houses has been to apply a ratio based on the area used for business purposes as a percentage of the area of the whole property. These calculations tend to produce a relatively low level of recovery of input tax of less than 50%.

There have been a number of tribunal decisions relating to input tax claimed on the costs of the general repair and maintenance of farmhouses. See ACS Eccles and Co, WJ & L Greig & Son and W Cupit & Sons at VIT64150. You will note that tribunals have consistently rejected the area measurement approach to apportionment. Instead they have applied a more subjective test, assessing the “dominant purpose” for why the expenditure was incurred. In the light of these decisions and in cases where:

  • the building is a typical working farmhouse;
  • the business is a full time farming activity; and
  • the work done is in the nature of repair and maintenance of the farmhouse

normally the business should treat 70% of the VAT incurred on the work done as input tax. The National Farmers Union has been advised of this policy.

In all other cases, such as where:

  • farming is only a part-time activity and the farmhouse is primarily the family home; or
  • the work done is an extension or alteration of the farmhouse

HMRC will think about each case on its merits. The normal tests of business purpose at VIT10200 should be used. In particular the test on nexus derived from the “Rosner” case (Rosner (FW) (t/a London School of International Business)) should be applied. See VIT61360. It is unlikely in these circumstances that the business proportion will exceed 40%.

If the occupants are employees other than directors or connected persons, the guidance at VIT41700 should be followed.