December Q&A
Is there VAT on renting out farmland?
Q. I have agreed to rent a field from a farmer who is unsure whether he must charge VAT. As far as I am aware, as long as he has not opted to tax the land he does not charge VAT. Is this correct?
A. The answer here is “it depends”. It will all come down to what the land will be used for under the agreement with the farmer. For example, if he rented out the land to another farmer who wanted to keep sheep there, this would be a zero-rated supply of “grazing rights” rather than a supply of land.
Most supplies you make that involve land are exempt from VAT but there are exceptions where they are subject to 20% VAT. For example, if a farmer rents out land to campers for the pitching of tents and caravans, this income would be subject to VAT. This would also be the case if it relates to charges for parking a vehicle on the land.
Finally, any rental arrangement that is exempt from VAT must meet the conditions of a licence to occupy land, i.e. the hirer must have exclusive use of a specific area of land for a clearly defined period of time, whether that it is one day, one month or one year.
Can I raise sales invoices in foreign currency?
Q. One of our customers has asked us to raise our sales invoices in euros, which we are happy to do in principle. But are there any specific VAT requirements that we need to be aware of?
A. If you issue invoices in foreign currency for supplies of goods or services that take place in the UK, you must convert the total amount of VAT payable into sterling. You must use the rate of exchange that applies at the time of supply. HMRC confirms that you can use any daily rate published in a national newspaper, although the best option is to use HMRC’s own exchange rates, published on its website. This information is published at the beginning of each calendar month and the rate applies for the whole month. Whichever published rate you use ensure you print a copy of the information and keep it filed with the invoice.
Can we pay monthly VAT returns?
Q. Our business recently got into serious VAT arrears with HMRC. Can we submit and pay monthly VAT returns in the future? This would help us to keep on top of the cash-flow challenges because it is one of our biggest business payments.
A. The legislation refers to a standard return period of three months. However, it gives HMRC the power to allow monthly returns to be submitted. It can also “direct a person” to make monthly returns, e.g. in the event of non-compliance or where there is a risk to the revenue.
However, HMRC’s policy is to only allow monthly returns to be submitted by repayment traders and not VAT payers. The repayments must be submitted regularly, usually because a business has a lot of zero-rated sales. If you wanted to make more regular payments to HMRC, you could join the annual accounting scheme.
If you do this, you submit one return each year but will make nine monthly payments on account for months 4 to 12 of the accounting year. The payments are based on the VAT paid in the previous year. Alternatively, you could just make monthly payments to HMRC and it will hold the money as a credit until your quarterly return is submitted.
