1. Summary of Key Points
- VAT administration is much easier in the scheme, so most farmers will benefit unless they currently have a high level of input VAT on purchases in their business.
- In the scheme there are no VAT returns to submit, no VAT control account to keep.
- There is much less chance of a VAT fine if you are within the scheme.
- There is a flat rate – 4% - to charge on most invoices in the scheme.
- Invoices raised with the 4% charge must be carefully set out and include all required information.
2. Background
VAT is a complex tax. The VAT agricultural flat rate scheme (AFRS) is an attempt by the Government to relieve farmers from getting involved in its complexities. This note provides a quick summary of the main issues.
3. Who can join the scheme?
Any “farmer” whose non-farming turnover is below the VAT threshold. Farming is defined pretty widely and in great detail in HMRC note 700/46, and includes horticulture and other activities many folk would not class as farming. Non-farming activities includes anything taking place on the farm which does not meet this definition of “farming”, for instance:
- Bed and breakfast.
- Farm visits paid for by the public.
- Riding lessons, fishing and other sporting activities.
However, there is nothing to stop a farmer from registering non-farming activities separately, and then joining the AFRS for the farming part of the business. But anyone who has been convicted of a VAT offence in the previous 3 years cannot join.
4. How do I join?
- You must first cancel your existing registration.
- Then complete a VAT 98 Fixed Rate Scheme for Agriculture Form.
- Send this to Carmarthen Registration Unit, HMCE, Old Station Road, Carmarthen, Dyffed SA31 1BT – their phone number is 01267 244004 if you need them to send you a form.
- It normally then takes three weeks to confirm you are on the scheme, and issue the AFRS number.
5. The Scheme Rate and Your Invoices
Farmers in the scheme charge a fixed rate addition – currently 4% – on their farming invoices. There are some exceptions when this addition – which the farmer can keep – can’t be charged:
- Sales of Farm machinery.
- Sales of Land.
- Sales for repairing and maintaining farm equipment.
- Sales to businesses which are not VAT registered.
- Sales to other farmers in the AFRS.
When you raise an invoice with the 4% addition, the invoice must show:
- Invoice number.
- Flat rate scheme number.
- Name & address of your business.
- Name and address of VAT registered customer.
- Date of sale.
- Description of goods or services being sold.
- Price charged excluding VAT.
- Rate and amount of addition – described as the Flat Rate Addition or FRA on the invoice.
6. Submitting returns
A big benefit of joining the scheme – there are no VAT returns to complete or submit.
7. Keeping Account of your VAT
Another benefit is that there is no need to set up a VAT control account in your books. But you still need to keep all of your records for at least six years.