The Agricultural Flat Rate Scheme is an alternative to VAT registration for farmers. A farmer can register to use the Agricultural Flat Rate Scheme where they will not account for VAT or submit VAT returns and will not be entitled to reclaim input tax.
Using the scheme allows farmers to charge and keep a flat rate addition when they supply goods or services to VAT registered customers. The flat rate addition is not VAT, but it acts as compensation for losing input tax on purchases.
Details and eligibility in operating the scheme can be found in VAT Notice 700/46.
As announced in the Budget 2020, new entry and exit rules for the VAT Agricultural Flat Rate Scheme will be implemented from 1st January 2021.
The new rules are:
- businesses can join the AFRS when their annual turnover for farming related activities is below £150,000
- businesses must notify HMRC once their annual turnover for farming related activities exceeds £230,000, to be deregistered from the scheme and register for VAT instead
- businesses with turnover that exceeds £85,000 for non-farming related activities will still be required to register for VAT and will be ineligible for the scheme
Up until the 31st December 2020 your client can continue operating the Agricultural Flat Rate Scheme. However, your client falls into the new rules for exiting the Agricultural Flat Rate Scheme as the annual turnover for farming related activities exceeds £230,000. Therefore, from 01 January 2021 the client will need to inform HMRC that he needs to be removed from the Agricultural Flat Rate Scheme and register for VAT.
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