A business is considered partially exempt when it receives income which is taxable for VAT purposes (e.g. crop and livestock sales) and income which is exempt from VAT (e.g. residential property letting). The difference between zero-rated and exempt supplies should be noted. A zero-rated sale (e.g. foodstuffs fit for human consumption, land let for grazing etc.) is taxable which means associated input VAT can be recovered. Input VAT attributable to exempt supplies is not recoverable unless it falls within certain limits. In either case, no VAT is charged to the customer. Supplies subject to the 20% or 5% rate of VAT are also ‘taxable’. What must I do if I am partially exempt? The business must consider the impact of partial exemption on input VAT recovery each time it submits a VAT return and again at the end of the VAT year. Most VAT years in the agricultural sector run to the end of March as returns are generally submitted monthly.
VAT agriculture – partial exemption
Partial exemption is an issue for many farms, but one that is often overlooked, or dealt with incorrectly. Daniel May, VAT Manager explores the issue further and how farms can overcome this issue.
A partially exempt business’s input VAT is split into three ‘pots’ –
1. The first contains input VAT directly attributable to taxable supplies – this is likely to include VAT on goods such as seeds, fertilisers and sprays, and on services such as transport of goods and contracting 2. As you may expect, the next pot contains input VAT directly attributable to exempt supplies – this is likely to include goods and services incurred in maintaining and renovating rental properties, letting agent fees and commissions etc. 3. The final pot contains all residual input VAT which cannot be directly attributed to either taxable or exempt income – this is likely to include overhead input VAT on items such as office costs and accountancy fees
8 | SCRUTTON BLAND | AGRICULTURE AND FARMING
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