|HMRC Reference:Notice 700/46 (October 2012)||View Change History|
This notice cancels and replaces Notice 700/46 (April 2011).
It explains the Agricultural Flat Rate Scheme, who can use it and how to apply to join.
This revised notice replaces the April 2011 edition and includes an example of the VAT 98 - Flat Rate Scheme for agriculture - application for certification.
You can access details of any changes to this notice since it was published either on our website at hmrc.gov.uk or by phoning the VAT Helpline on 0300 200 3700.
Section 10 contains an example of the VAT 98 form which carries the force of law under the VAT Regulations 1995, Regulation 204(c).
The flat rate scheme is an alternative to VAT registration for farmers.
If you register as a flat rate farmer you do not account for VAT or submit returns and so cannot reclaim input tax. But you can charge and keep a flat rate ‘addition’ (FRA) when you sell goods or goods and services to VAT registered customers. You cannot join the scheme if the value of your non-farming activities is above the VAT registration threshold.
The flat rate addition is not VAT but acts as compensation for losing input tax on purchases. It is not intended as reimbursement for all the VAT incurred on purchases. The flat rate addition is 4%.
For the purposes of this scheme only, the definition of a farmer is someone who carries on any of the agricultural production activities or agricultural production activities and services listed in Section 3.
Although the term ‘farmer’ is used throughout this notice, there are a number of activities, such as horticulture, which are not usually called farming but are covered by the scheme. Section 3 will help you decide if the scheme covers your activities.
To join you must:-
(a) be in business as a farmer supplying goods, or goods and services (but not services alone), which qualify for inclusion in the scheme – for details of these see Section 3.
(b) cancel your VAT registration, if you are currently registered. You can only do this if your turnover for non-farming goods and services is below the VAT registration threshold. For details of the current VAT registration threshold, see Notice 700/1 Should I be registered for VAT?), and
(c) not, in the three years before your application, have been convicted of any offence in connection with VAT or have been penalised for any kind of VAT offence under Section 152 of the Customs and Excise Management Act 1979, or been assessed to a penalty under Section 60 of the VAT Act 1994.
You cannot join the scheme if…
For example, if you…
your primary activity is to buy and sell animals
you are engaged in an activity once removed from farming
your turnover for non-farming activities exceeds the registration threshold
No. You can choose to remain registered for VAT if you wish.
The scheme is covered in UK law in VAT Act 1994, section 54 and VAT Regulations 1995, regulations 202-211. The VAT (Flat Rate Scheme for Farmers) Designated Activities Order 1992 details those activities covered.
Once completed you should send your application form to Grimsby VAT Registration Service. HM Revenue & Customs, Imperial House, 77 Victoria Street, Grimsby, NE Lincs DN31 1DB who will:
You can apply at any time, but your certificate will only take effect from the date we receive your application. To make sure registration by your preferred date, you can apply up to 30 days in advance, as that way you can be more certain when your certificate will start. If you are VAT registered your certificate will not take effect from a date before your registration is cancelled. Please allow up to 3 weeks for a certificate to be issued.
Type of business…
Your certificate will show the…
Sole proprietor or company
In either case, the certificate covers all partners who were named on the application form and any accompanying list.
You can normally join the scheme if you are involved in any of the following…
Those types of processing for which you have grown the products being processed qualify.
An example would be if you grow trees, fell them and process the timber, perhaps by cutting it into logs. But not if you are processing timber that someone else has grown.
The following services qualify, if they are linked to one of the activities listed at paragraph 3.1:-
Type of activity
You cannot join the scheme if…
If the level of your taxable turnover of your non-farming business activities is less than the VAT registration threshold, you can still be a flat rate farmer. For the current threshold, see Notice 700/1 Should I be registered for VAT? Non-farming activities includes things like the provision of bed and breakfast or holiday accommodation, charges to visit the farm, riding lessons etc.
If you are already a flat rate farmer and your non-farming turnover goes over the threshold you must leave the scheme and register for VAT. However, you should also read paragraph 4.4 below. If your non-farming turnover is above the threshold and you are already registered for VAT you must remain so.
No. If you are not VAT registered, you cannot charge VAT on your non-farming activities, such as bed and breakfast. You cannot charge the flat rate addition on these supplies either.
Yes, if it is run as a separate business and it is run by someone not granted a flat rate certificate.
For example, if you have a flat rate farming certificate as a sole proprietor, you can register for VAT as a partnership or limited company, as long as the partnership or company owns the non-farming business.
You cannot reclaim VAT through the registered partnership or limited company, on expenses you incur on your farm activities.
If you buy machinery and/or equipment which has a dual purpose and is for legitimate use in both businesses, you may reclaim on your VAT return only the proportion of VAT proper to the use of that equipment in your VAT registered business.
We can refuse if…
Information on reviews and appeals is available on our website at www.hmrc.gov.uk. You can find out more about tribunals and obtain the relevant forms from the Tribunals on their website or you can phone them on 0845 223 8080.
No. You can add the flat rate addition of 4% to the sale price of qualifying goods or goods and services sold to VAT registered customers even where these sales would be zero-rated for VAT. This is because the flat rate addition is not a VAT rate or amount.
You do not have to add the flat rate addition to your sales, but when you do, you may keep it. However, you must not charge the flat rate addition on sales of:
And you must not charge the flat rate addition on sales to:
This is because they are unable to reclaim the addition.
No. You do not have to complete any VAT returns or pay anything to HMRC, if you are using the scheme.
You must issue invoices if you charge the flat rate addition on your qualifying goods and services to your VAT registered customers. They will need invoices to claim back the addition on their VAT return.
Invoices must show:
Your customer can prepare an invoice for you provided the arrangements meet the legal conditions laid down in the VAT regulations and in Notice 700/62 Self Billing.
If you cancel your VAT registration to join the scheme, you will not have to pay VAT on the value of any stocks and assets of your business.
If you become a flat rate farmer, you must keep your normal business records and copies of all invoices on which the flat rate addition is shown for 6 years.
Generally our officers will not visit you but, exceptionally, an officer may ask to see your records. If this happens you must make them available.
Your VAT registered customers will be able to reclaim flat rate additions on their VAT returns if the goods or services you sell them are for business use. They treat the addition as input tax. If a customer claims an unauthorised amount, for example an amount charged on goods which are not agricultural produce, we will disallow it. The customer may then have to pay a financial penalty.
No VAT is due when agricultural produce is sent or taken to a VAT registered person in another EU Member State but if you, as a UK flat rate farmer, sell agricultural produce to a VAT registered person in another EU Member State, you will be able to charge the flat rate addition. Your VAT registered customers in other EU Member States can reclaim the flat rate addition you have charged. You will need to issue them with a flat rate invoice so that they can do this. Paragraph 5.4 tells you the details you will need to include on the invoice.
If you are registered for VAT in the UK and you buy goods from suppliers in other EU Member State, on which a flat rate addition has been charged, you can reclaim this amount from the tax authority in the supplier’s Member State.
As a UK flat rate farmer acquiring goods, other than new means of transport, from other EU Member States, if those acquisitions reach the current VAT registration threshold in a calendar year, you may have to register for VAT and leave the flat rate scheme. If you think this affects you, please ask the VAT Registration Service for advice (see paragraph 9.1 for the address).
Special arrangements apply to new means of transport. Notice 728 VAT: Motor vehicles, boats, aircraft: intra-EC movements by private persons will give you the details.
As a flat rate farmer you will be able to charge the flat rate addition when you sell agricultural produce to customers outside the EU, provided the produce is for the customer’s business.
You can leave the scheme voluntarily, or HMRC can remove you compulsorily if you no longer qualify for the scheme.
To leave voluntarily, you must have been in the scheme for at least a year. If you meet this condition, you must apply in writing to the VAT Registration Service (see paragraph 9.1 for the address).
You must leave the scheme if you:
Some of the circumstances where we may cancel your certificate include where:
If you have registered for VAT since leaving the scheme, you can only rejoin the scheme if at least:
If you have not registered for VAT since leaving the scheme, and were not required to be registered, you may rejoin the scheme at any time.
If you are selling produce, which is combined with that of other farmers, you may only charge the price agreed for the produce without the flat rate addition.
In these cases, the buyer should pay the farmers' group only the price agreed for the produce, without the flat rate addition. The farmers' group will pay the flat rate addition to those farmers who have a certificate, when the proceeds of the sale are shared out. The farmers' group will be able to reclaim this addition on their own VAT return, as though it were input tax.
If you are using the Auctioneers’ Scheme or the Margin Scheme and acting in your own name, you are regarded as a principal for VAT purposes, buying and selling the goods. In this case, flat rate farmers will be able to charge you the flat rate addition. You will be able to reclaim it on your VAT return. The sale will be subject to the normal VAT rules.
If you are not using either of these schemes and you are not acting in your own name, you will not be regarded as purchasing and selling the goods for VAT purposes. In this case, the flat rate farmer will not be able to charge you, the auctioneer, the flat rate addition. However, the farmer will be able to charge the flat rate addition to the eventual buyer of the goods if the buyer is VAT registered.
Written notification of any variation to your certificate should be sent to Grimsby VAT Registration Service, HM Revenue & Customs Imperial House, 77 Victoria Street, Grimsby, NE Lincs DN31 1DB.
You must notify us if you:
(a) change your name or address
(b) are in partnership and a partner joins or leaves the business, by providing the full name of the partner concerned. If a partner leaves to run another farming business and a new certificate is required in respect of the new business, a fresh application must be made, or
(c) are a sole proprietor who takes on a partner, by providing the full name of your new partner.
In these cases we will reissue your certificate with the same number.
In all other cases where the legal entity changes, the existing certificate must be cancelled, but the new entity may apply for a new certificate.
This is the VAT 98. The first page of this Form is published by the Commissioners under Regulation 204(c) of the VAT Regulations 1995. It is the form which must be completed if a business wants to apply to join the scheme.
Your Charter explains what you can expect from us and what we can expect from you. For more information, go to hmrc.gov.uk/charter.
If you have any comments or suggestions to make about this notice, please write to:
HM Revenue & Customs
1st Floor Regian House
Please note this address is not for general enquiries.
For your general enquiries please phone our Helpline 0300 200 3700.
If you are unhappy with our service, please contact the person or office you have been dealing with. They will try to put things right. If you are still unhappy, they will tell you how to complain.
If you want to know more about making a complaint go to hmrc.gov.uk and under quick links, select Complaints and appeals.
HM Revenue & Customs is a Data Controller under the Data Protection Act 1998. We hold information for the purposes specified in our notification to the Information Commissioner, including the assessment and collection of tax and duties, the payment of benefits and the prevention and detection of crime, and may use this information for any of them.
We may get information about you from others, or we may give information to them. If we do, it will only be as the law permits to:
We may check information we receive about you with what is already in our records. This can include information provided by you, as well as by others, such as other government departments or agencies and overseas tax and customs authorities. We will not give information to anyone outside HM Revenue & Customs unless the law permits us to do so. For more information go to hmrc.gov.uk and look for Data Protection Act within the Search facility.
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