The majority of farmers will have or will be in the process of completing their BPS claim forms, before the 15 May deadline. A significant number need the help of professionals to do this task. Farmers may have also bought further entitlements ahead of the deadline to increase the value of their claim.
Can the VAT incurred on the entitlements, connected professional costs of the purchase and annual claim form completion be recovered?
HM Revenue & Customs (“HMRC”) have often rejected VAT claims as they consider they relate to nonbusiness activities – the usual rule is that if you are incurring costs to generate a taxable supply be it at 0%, 5% or 20% then you can recover the VAT relating to those costs (as always there are exceptions).
The income from BPS does not represent a consideration for a supply between the farmer and the state, as both of these components are needed for a taxable supply to take place. Therefore BPS income is outside the scope of VAT and will also not be included in the net sales box on the VAT return itself.
HMRC’s view was put to the test during a First Tier Tribunal (FTT) case “Frank A Smart & Son Limited v H M R C (2016)” where the appellant had purchased entitlements and had had the input tax disallowed. The FTT decided there was sufficient evidence that the purchase and subsequent income received was not a separate activity to the farming supplies so a nonbusiness argument did not apply. They were seen as being directly linked to the company’s taxable business and therefore input tax was recoverable.
If you would like to discuss the BPS and if you can recover VAT on the entitlements, connected professional costs of the purchase and annual claim form completion then please contact our expert agricultural or VAT team.