Commentary

V6.256 VAT recovery and other practical points for farmers and landowners

Part V6 Business by business

V6.256 VAT recovery and other practical points for farmers and landowners

V6.256 VAT recovery and other practical points for farmers and landowners

VAT recovery for farmers and landowners

For general discussion of input tax and VAT recovery, see Division V3.4. This section deals with some specific recovery issues likely to cause difficulties for farmers and/or landowners.

VAT recovery on farmhouses

Whilst VAT incurred on works to an individual's home is generally irrecoverable, HMRC has recognised that farmhouses are a special case.

HMRC's manual VIT41800 indicates that its policy is that a business should treat 70% of VAT incurred as input tax where all of the following conditions are met:

  1.  

    •     the building is a typical working farmhouse

  2.  

    •     the business is a full time farming activity

  3.  

    •     the work done is in the nature of repair and maintenance of the farmhouse

However, in all other cases HMRC indicates that it will consider the specifics (although it is unlikely that it will allow more than 40% to be treated as input tax). Such situations include:

  1.  

    •     where farming is only a part-time activity and the farmhouse is primarily the family home

  2.  

    •     where the work done is an extension or alteration of the farmhouse

(VIT41800).

In practice HMRC are likely to look for evidence that the 70% actually represents a realistic assessment of business use. It may also challenge the claims of farmers who do not live in their farmhouses throughout the year, contract farmers and even those made by share farmers (see below 'Other practical points for farmers and landowners' for details of contract and share farmers).

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