Avoid pitfalls of festive diversification

Farmers who look to add value to their business over the forthcoming festive period must be wary of avoiding a New Year tax hangover, accountants have warned.

Landowners and rural businesses need to remember the tax implications of moving into other seasonal activities connected with, but not necessarily directly related to, their main business activity, said Alison Robinson, partner at Harrogate-based Saffery Champness.

Farmers and rural firms often look to cash in on the season by using land as seasonal attractions, operating a Christmas market, or selling Christmas trees, for example.

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Mr Robinson said: “Whilst the income from such activities obviously needs to be declared it is important to ensure that it is included in the appropriate section of the tax return. Failure to do so could have adverse effects on the IHT status of the business and its assets, or reduce the opportunity to pay pension contributions.

“The VAT status of the activity should not be forgotten – those who are VAT registered, for example a farmer who sells Christmas trees, will need to account for VAT on the sales price. Similarly, letting land that has been ‘opted’ to tax will mean that the operator will need to pay VAT in addition to the agreed fee for the use of the land concerned.

“Those who are not VAT registered need to remember to consider the income arising from these seasonal activities as well as their mainstream income and whether the VAT threshold is likely to be breached.

“Follow the rules, take advice where you are uncertain and enjoy a worry free festive period as far as tax issues are concerned,” he said.