VQOTW: Agricultural Flat-Rate Scheme

We have a client who runs a plant nursery and claims that he is exempt from registering for VAT as the business falls under market gardening. I have searched HMRC’s website but can find nothing on this subject. Is he correct?

There are a couple of possible explanations for this.  If your client is mainly involved in zero-rated crop production so that he would be in a regular repayment position in respect of his VAT returns, he may have requested exemption from registration. A request is made by ticking the appropriate box on the VAT 1 Application to Register for VAT.

All crops that are grown to produce food of a kind for human consumption or animal feeding stuffs are zero-rated.  The zero rate also applies to seeds, seedlings, crowns, spores, tubers and bulbs of edible vegetables and fruit.

Any crop that generally produces items that are not fed to humans or animals is always standard-rated, as are plants that are primarily grown for their ornamental effect (such as ornamental nursery stock including trees, shrubs, herbaceous plants, alpines, and pot plants).

If your client’s sales are not mostly zero-rated so he would not be granted exemption from registration, it may be that he is thinking of the Agricultural Flat Rate Scheme (AFRS), and has seen that market gardening comes under the umbrella of farming which can be found at Section 3 of Notice 700/46.  This scheme is an alternative to VAT registration where the conditions are met, rather than automatic exemption from registration. The value of non-farming activities and acquisitions may mean that he is not eligible to join the scheme.

Farming includes:

  • general agriculture, including viticulture;
  • growing of fruit and of vegetables, flowers and ornamental plants, whether in the open or under glass;
  • production of mushrooms, spices, seeds and propagating materials; or
  • nurseries – this covers the rearing of young plants for sale.

Non-farming activities include services such as the provision of bed and breakfast or holiday accommodation, charges to visit the farm or riding lessons. Where the value of those sales is above the VAT threshold, he cannot use the AFRS.  Additionally, if he is acquiring goods, other than new means of transport, from other EU Member States where the value if those acquisitions reach the current VAT registration threshold in a calendar year he will be required to register for VAT.

In brief, the scheme works by allowing an eligible farmer to charge a 4% Flat Rate Addition to VAT registered customers when supplying qualifying goods or services, even where those sales would ordinarily be zero rated.  This ‘addition’ is retained as compensation for the loss of input tax, rather than an exact reimbursement.  A farmer wishing to use the scheme must apply to use it and will be issued a certificate by HMRC. The goods and services qualifying for the addition are those set out in section 3 of the VAT Notice.  As a famer certified to use the scheme is not VAT registered there are no VAT returns to submit and no input tax can be recovered on machinery and overheads.

Full details of how the scheme operates can be found at: https://www.gov.uk/guidance/agricultural-flat-rate-scheme-notice-70046

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If you have a VAT query why not contact the VAT Advice Line on 0844 892 2470 to discuss the implications. Our team of experts have a wealth of experience and can also provide a written consultancy service at competitive rates.

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VAT Advice Consultant
0844 892 2470

Janis worked for HMRC for 20 years covering both Customs & Excise and VAT disciplines

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