In the run-up to Christmas the client will be selling Christmas trees. Some of the Christmas trees will be those the client has grown; however due to seasonal demand the client will also be selling trees bought from other suppliers. Will trees that are purchased and sold be classed as a farming activity or non-farming activity? The client is concerned that if the sale of the trees bought in and sold are non-farming supplies, they will no longer be eligible for the AFRS.
AFRS is an alternative to VAT registration for farmers. As a flat rate farmer, you don’t account for VAT, no VAT return is submitted, and no input tax is reclaimed.
Operating the AFRS allows farmers to charge and keep a flat rate addition when they supply goods and services to VAT registered customers. The flat rate addition is 4% and acts as compensation for losing input tax on purchases.
Activities that qualify for the AFRS are farming activities such as:
- Crop production
- Stock farming
- Forestry
- Fisheries
Where a farmer has both farming activities and non-farming activities, they are eligible to use the AFRS but must leave if any of the following apply:
- They have a business with an annual turnover for farming activities that is more than £230,000
- They have a business that, at the end of any month, has a turnover for farming activities of more than £230,000 for the prior 30-day period
- They become liable to be registered for VAT as a result of their non-farming supplies going over the threshold
- They cease to produce agricultural goods qualifying for the flat rate scheme
- They cease to qualify as a flat rate farmer because they sell their business or ownership of the business changes from sole proprietor to limited company, in which case they can apply for a new certificate
- They become insolvent or otherwise incapacitated
Your client’s sales of the Christmas trees they grow will fall into the category of crop production (ornamental plants) which is a farming activity.
The sale of bought-in Christmas trees will be classed as non-farming activity as the trees were not grown by your client.
If the total income of non-farming activity including the sale of the bought-in Christmas trees exceeds the £85000 VAT registration threshold then your client will be ineligible to continue using the AFRS and will be required to write to HMRC and leave the scheme and will be required to register for VAT.
More details on eligibility and applying for AFRS can be found in VAT Notice 700/46 https://www.gov.uk/guidance/agricultural-flat-rate-scheme-notice-70046
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