Beware the VAT-man with change of use, warns Old Mill
Farmers who have changed the use of farm buildings could be falling foul of VAT rules, warns accountant Old Mill Rural Services.
Many landowners have erected farm buildings and then let them out, changing their use from VAT-rated to VAT exempt. “If you claimed the VAT back on the building work, and then change the use from agricultural to a commercial let, you could end up having to repay the VAT,” says Mark Peters, director of Old Mill’s VAT consultancy.
With HM Revenue & Customs targeting this area for inspection, farmers could end up having to pay back thousands of pounds in tax, he adds.
Problems typically arise when farmers change the use of a new property before fulfilling their original intentions, hence altering the VAT situation. So if a building was intended for agricultural use, but was let out before being used for the farm, the landowner could have to repay the VAT on the build. “One solution might be to elect to charge VAT on the rental income,” says Mr Peters.
But if the owner actually satisfied the original agricultural use they could safely change the use without incurring a VAT liability, he adds. “However, if HMRC believes there was always an intention to use it for dual purposes, then they would argue that a only a proportion of VAT should have been claimed initially.”
Adjustments can also arise even when the intended use has been carried out, if the expenditure involved is significant, warns Mr Peters. “In some circumstances the use of a property must be monitored for 10 years, with any changes in the original level of taxable business resulting in a VAT adjustment.”
Of course, the regulations could also work in landowners’ favour. Anyone building a residential property intended for a VAT-exempt long let, who instead puts it to use as holiday accommodation, could make a belated claim to recover the VAT paid on the build, for example.
“However, every situation is different, and with HMRC paying closer attention to this area, anyone planning to change the use of a building should seek professional advice.”