Agricultural flat rate scheme letter

If you operate a small farming business, you might qualify for a little known scheme that can give your cash flow a boost.

When is the scheme available?

The agricultural flat rate scheme (AFRS) is available to a wide range of “farming” businesses. Farming for the purposes of the scheme is very widely drawn and includes any business involved in:

Crop production. 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).

Stock farming. General stock farming, poultry farming, rabbit farming, beekeeping, silkworm farming, or snail farming.

Forestry. Growing, felling and general husbandry of trees in a forest, wood or copse including the conversion of felled timber into sawlogs, industrial small diameter roundwood, pitprops, cordwood, fencing material and firewood.

Fisheries. Fresh-water fishing, fish farming, breeding of mussels, oysters and other molluscs and crustaceans, or frog farming.

Benefits

Joining the AFRS does not permit you to reclaim VAT on your costs, and doesn’t require you to account for VAT to HMRC on your sales. Instead, it allows you to charge and keep a flat rate addition (FRA) when you sell goods or services to VAT-registered customers.

The FRA is not actual 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%. Your customers can then reclaim this as if it were input tax so they are not out of pocket.

You cannot join the scheme if: (1) you are VAT registered - you would have to deregister first; (2) the value of your non-farming activities is above the VAT registration threshold; (3) you were using it previously and at least one year has not elapsed since you left it; or (4) you have been convicted of certain VAT-related offences in the previous three years.

HMRC can also refuse to allow you to join the scheme if you would be “substantially” better off than if you registered for VAT. HMRC’s guidance indicates a saving of more than £3,000 in a year is likely to cause problems.

How to join

Join the scheme by completing Form VAT98 and sending it to HMRC. Use our Agricultural Flat Rate Scheme Letter to accompany this.