I run a mixed arable and dairy farm in my own name, and my wife operates a holiday accommodation business from two of the farm cottages. The VATman has said that we should treat both businesses as one and charge VAT on the holiday lettings. He has also sent us a bill for past VAT due of £10,000. What should we do?
Holiday accommodation should be subject to VAT at the standard rate if the total turnover of the business is higher than the compulsory VAT threshold (currently £68,000). The VATman wants to combine the turnover of the farm, with your wife’s holiday lettings business to reach this threshold. This can only be done if he can show that the two businesses are bound together on an economic, financial and organisational basis. Also the two businesses can only be treated as one business for VAT purposes from a current date, not some date in the past. You should appeal against the VAT bill of £10,000 and discuss with us how the businesses can be shown to be independent in the future. For instance the farm could charge the holiday business a small rent for the cottages used for letting.