Loading…

Budget 2020: Changes to the VAT Agricultural Flat Rate Scheme.

Following consultations in 2019, new entry and exit rules are to be introduced for the VAT Agricultural Flat Rate Scheme AFRS from 1 January 2021. 

11 March 2020

From that date:

  • businesses can join the AFRS when their annual turnover for farming related activities is below £150,000
  • businesses must notify HMRC once their annual turnover for farming related activities exceeds £230,000, to be deregistered from the scheme and register for VAT instead
  • businesses with turnover that exceeds £85,000 for non-farming related activities will still be required to register for VAT and will be ineligible for the scheme.

Businesses that use the AFRS pay VAT as a fixed percentage of their VAT inclusive turnover but cannot recover VAT on costs. The AFRS is a variant of the flat rate scheme specifically designed for farmers and other activities relating to agricultural production (such as horticulture).

In most situations the VAT flat rate scheme offers little or no advantage as the 4% of turnover which farmers receive from using the scheme seldom equates to the amount of input VAT which is precluded from recovering.

However, in a recent CJEU case an agricultural business had arranged its affairs such that it incurred little input tax and thus benefited from the AFRS, and it was held that HMRC had no powers to remove farmers from the scheme for the reason that they were benefiting from it.

What should you do?

Any business using the scheme or considering using it now needs to monitor turnover of both agricultural and non-agricultural activities to ensure they are eligible to use the AFRS. 

Read more on the Budget here.

About the author

Linda Skilbeck

+44 (0)20 8037 3114
skilbeckl@buzzacott.co.uk
LinkedIn

11 March 2020

From that date:

  • businesses can join the AFRS when their annual turnover for farming related activities is below £150,000
  • businesses must notify HMRC once their annual turnover for farming related activities exceeds £230,000, to be deregistered from the scheme and register for VAT instead
  • businesses with turnover that exceeds £85,000 for non-farming related activities will still be required to register for VAT and will be ineligible for the scheme.

Businesses that use the AFRS pay VAT as a fixed percentage of their VAT inclusive turnover but cannot recover VAT on costs. The AFRS is a variant of the flat rate scheme specifically designed for farmers and other activities relating to agricultural production (such as horticulture).

In most situations the VAT flat rate scheme offers little or no advantage as the 4% of turnover which farmers receive from using the scheme seldom equates to the amount of input VAT which is precluded from recovering.

However, in a recent CJEU case an agricultural business had arranged its affairs such that it incurred little input tax and thus benefited from the AFRS, and it was held that HMRC had no powers to remove farmers from the scheme for the reason that they were benefiting from it.

What should you do?

Any business using the scheme or considering using it now needs to monitor turnover of both agricultural and non-agricultural activities to ensure they are eligible to use the AFRS. 

Read more on the Budget here.

Speak to an expert
Speak to an expert

If you have a query about any of the topics mentioned in this article, please fill in the form below and one of our experts will be in touch.

Please verify yourself above.
Please complete all required fields above.
close back
Your search for "..."
did not yield any results.
... results for "..."
Search Tags