Setting up a honey business

[pargyle]

We got inspected by the VAT man in November.
Thought as we have had 4 rebates in a row that was what is was about. Apparently we were just 'randomly' picked out for inspection.
Had the balance sheets etc from the accountant plus for some unknown reason he wanted to look at all the V5 docs for the vehicles. Didn't ask him why, he glanced at them and gave me them back. (wondered incase he thought i had a Porsche or Ferrari hidden in the garage) After a few taps on the laptop he said everything was fine and left.
Feel good now, but wonder how long before we are 'randomly' picked out again. Have a return to submit soon and it looks like another rebate.

Ahh ... didn't get to the rest of the thread - bears out what I was saying about 'random selection'.

 

[jackstraw]

VAT and beekeeping

Although the original question was about income tax (IT) the thread now seems to be chiefly concerned with VAT. The starting point for both is the same. In order to be registered for VAT or IT the beekeeping needs to be run on a commercial basis. There are technical tests for this but common sense is as good a measure as any. Would an independent individual looking at the business and its trading results consider the beekeeping to carried out with the intention of making a profit. It is not necessary to have made a profit but the intention to do so should certainly be there.
Assuming that there is commercial intent we need to consider VAT registration. As has previously been said, VAT registration is compulsory when the turnover of the business exceeds the VAT registration threshold in any 12 month period. The threshold changes each year, mostly on 1st May, and is currently set at £79,000. For beekeeping the turnover would represent all sales of bees, honey, hives/nucs and other bee by-products. The measure is always 12 months long, it does not matter if turnover in any single quarter is significantly higher than £19,750 (£79k /4). The measure is always made to the last day in a calendar month adding up the sales over the previous 12 months. This is repeated on the last day of every month
For beekeeping there are no sales which would be exempt from VAT. All sales would be standard or zero-rated. The difference between zero-rated and exempt is therefore not relevant here. (but for information only when exempt sales are made the amount of VAT which may be recovered on purchases is restricted)
A trader may choose to register for VAT voluntarily before reaching the £79.000 threshold. Provided the beekeeper can demonstrate that they are trading commercially HMRC must accept their registration.
Once registered for VAT the trader must charge their customers VAT and then account for VAT to HMRC on their standard rated sales. The trader may deduct from the VAT on their sales any VAT incurred on their purchases during the VAT period (typically a quarter but could be monthly or annually by election). Where the sales are chiefly zero-rated as would be the case for sales of honey, bees or non-EU sales this would often result in a repayment claim.
When repayment claims are made on a frequent basis it is usual, and in my opinion right, that the trader is selected for checking by HMRC. This could be conducted by phone or more usually a visit from an HMRC Officer. An honest trader should have nothing to fear from such a visit, the Officers in my experience are friendly, knowledgeable and helpful. They are not there to 'catch out' a trader or solely to maximise the Revenue's purse but are there to make sure that all is being done correctly.
Given that a commercial beekeeper after the initial capital purchases does not have a large outlay in consumables there is probably not a lot of purchase VAT which is available to recover until the size of the business is large. I would suggest that it would probably not be worth the effort of being registered for VAT until sales exceed say £25,000. However each business should be considered on its own merits
VAT is fundamentally a straight-forward tax but can seem confusing to those coming to it afresh. Indeed beekeeping is a more complicated trade from a VAT perspective than most. However excellent advice can always be obtained by calling the HMRC VAT advice line 0300 200 3700
I hope that the above is of use, anyone would be welcome to PM me if they need any clarification or further advice
Jack

My background - In addition to being a hobby bee-keeper I am a qualified accountant and tax adviser have run my own accounting practice for more than 20 years.

 

[mbc]

Jack

Good info, clearly presented. Thanks for taking the time to post.

 

[Stiffy]

Although the original question was about income tax (IT) the thread now seems to be chiefly concerned with VAT. The starting point for both is the same. In order to be registered for VAT or IT the beekeeping needs to be run on a commercial basis. There are technical tests for this but common sense is as good a measure as any. Would an independent individual looking at the business and its trading results consider the beekeeping to carried out with the intention of making a profit. It is not necessary to have made a profit but the intention to do so should certainly be there.
Assuming that there is commercial intent we need to consider VAT registration. As has previously been said, VAT registration is compulsory when the turnover of the business exceeds the VAT registration threshold in any 12 month period. The threshold changes each year, mostly on 1st May, and is currently set at £79,000. For beekeeping the turnover would represent all sales of bees, honey, hives/nucs and other bee by-products. The measure is always 12 months long, it does not matter if turnover in any single quarter is significantly higher than £19,750 (£79k /4). The measure is always made to the last day in a calendar month adding up the sales over the previous 12 months. This is repeated on the last day of every month
For beekeeping there are no sales which would be exempt from VAT. All sales would be standard or zero-rated. The difference between zero-rated and exempt is therefore not relevant here. (but for information only when exempt sales are made the amount of VAT which may be recovered on purchases is restricted)
A trader may choose to register for VAT voluntarily before reaching the £79.000 threshold. Provided the beekeeper can demonstrate that they are trading commercially HMRC must accept their registration.
Once registered for VAT the trader must charge their customers VAT and then account for VAT to HMRC on their standard rated sales. The trader may deduct from the VAT on their sales any VAT incurred on their purchases during the VAT period (typically a quarter but could be monthly or annually by election). Where the sales are chiefly zero-rated as would be the case for sales of honey, bees or non-EU sales this would often result in a repayment claim.
When repayment claims are made on a frequent basis it is usual, and in my opinion right, that the trader is selected for checking by HMRC. This could be conducted by phone or more usually a visit from an HMRC Officer. An honest trader should have nothing to fear from such a visit, the Officers in my experience are friendly, knowledgeable and helpful. They are not there to 'catch out' a trader or solely to maximise the Revenue's purse but are there to make sure that all is being done correctly.
Given that a commercial beekeeper after the initial capital purchases does not have a large outlay in consumables there is probably not a lot of purchase VAT which is available to recover until the size of the business is large. I would suggest that it would probably not be worth the effort of being registered for VAT until sales exceed say £25,000. However each business should be considered on its own merits
VAT is fundamentally a straight-forward tax but can seem confusing to those coming to it afresh. Indeed beekeeping is a more complicated trade from a VAT perspective than most. However excellent advice can always be obtained by calling the HMRC VAT advice line 0300 200 3700
I hope that the above is of use, anyone would be welcome to PM me if they need any clarification or further advice
Jack

My background - In addition to being a hobby bee-keeper I am a qualified accountant and tax adviser have run my own accounting practice for more than 20 years.

What a refreshingly good post, thank you.

 

[VEG]

I agree a great post.

 

[pargyle]

I agree a great post.

+1 ... sums it all up.

Not sure that I agree that all VAT inspectors are friendly, helpful, fluffy characters ... I had one that was downright obnoxious and went about nit picking every last cent until they thought they had found something - VAT claimed back on two TV's (bearing in mind we generally were purchasing educational equipment) - He clearly thought these were for personal use and was almost dancing round the office with excitement ... until we showed him the bills of lading for the two TV's that went off to The Gambia. He gave in after that ... I've never fiddled taxes and it irritates me that you are often considered as 'guilty' until you are able to prove otherwise.

And as for Inland Revenue personnel ... particularly the enforcement and collections department - lets just leave it as I have a low opinion ...

 

[jenkinsbrynmair]

+1 ... sums it all up.

Not sure that I agree that all VAT inspectors are friendly, helpful, fluffy characters ... I had one that was downright obnoxious and went about nit picking every last cent until they thought they had found something - VAT claimed back on two TV's (bearing in mind we generally were purchasing educational equipment) - He clearly thought these were for personal use and was almost dancing round the office with excitement ... until we showed him the bills of lading for the two TV's that went off to The Gambia. He gave in after that ... I've never fiddled taxes and it irritates me that you are often considered as 'guilty' until you are able to prove otherwise.

And as for Inland Revenue personnel ... particularly the enforcement and collections department - lets just leave it as I have a low opinion ...

Good post Jackstraw, and a refreshing change to meet an accountant who has a good knowledge of VAT law (savws me scraping around trying to remember it all!!

Tim 1606 just got selected on the good old VAT verification visit - I think the general expectation is for a first return to be a repayment but when theres more it gets automatically highlighted and even after a check in the office by the VATman might reassure him as to the reason for the claims, a fair number will get visited (slightly easier than normal inspections)

Pargyle - the unfortunate thing about VAT officers now is that they were taken over by the revenue (Any spit on the floor smilies one here?) so you could easily het a taxman doing a VAT visit

 

[ROACHMAN]

Yes, thanks Jackstraw

 

[pargyle]

Pargyle - the unfortunate thing about VAT officers now is that they were taken over by the revenue (Any spit on the floor smilies one here?) so you could easily het a taxman doing a VAT visit

Ahhh yes ... the change was just starting to happen when I shut up shop ... the two departments were supposed to be working hand in hand and sharing information - In reality the two departments might have been combined but their computers weren't ....

 

[dpearce4]

I had my own business for 10 years. I was vat registered for all 10 of them, I made vat refund claims 3 quarters of each year and only 1 payment normally the end of the year,and this was always in Jan after the xmas sales, and it was a net refund of £3-4k by the end of the year. In the 10 years I never had a visit and they always payed up without any issues. Im sure it will be the same if I ever get vat registered for my beekeeping.

 

[Marton]

Bees are not VAT Exempt ... they are Zero Rates - there's a difference.
If you sell them in a Nuc or hive then you are into another situation as the Nuc or hive carry VAT at the standard rate and will have to be accounted for as such, There are situations (where the bee packaging is disposable) that it can be ignored for VAT purposes but it's a bit of a complex area.

I have just discussed this with a VAT partner in a multinational accountancy LLP.

His view is that there should be no VAT (ie Zero rated) if the prime purpose is the purchase of the bees.

If, on the other hand, the prime purchase is a Hive or Nuc and the bees were ancillary it would be Standard rated ie 20%.

 

[Bates]

Thanks for the info, I hate all the accounting side of things. I'd rather be out doing what I enjoy. I am meeting with my accountants this week and we will be discussing the VAT issue.

 

[jenkinsbrynmair]

I have just discussed this with a VAT partner in a multinational accountancy LLP.

His view is that there should be no VAT (ie Zero rated) if the prime purpose is the purchase of the bees.

If, on the other hand, the prime purchase is a Hive or Nuc and the bees were ancillary it would be Standard rated ie 20%.

(Ish!) when buying a colony of bees you could argue that the nuc is but a container for the zero rated goods within. You would pay VAT on the standard rated item but not on the livestock.

 

[Smokeyred]

I am afraid that may not suit you, but I would not go into business until I absolutely had to.

At present, in no way could HMRC contend that you are in business because. After all you have yet to recoup your initial outlay. HMRC are only interested in getting tax off people . You dont owe any tax because you have made no profit!

Once you have recouped your initial outlay of £8000 plus any other reasonable expenses such as mileage, telephone etc, you might consider registering a business.

I would keep a record of my expenses so I might know better when that time had arrived. Only at that point I might consider paying my accountant a visit.

Meanwhile I would not bother to register for VAT and I would not bother to spend money consulting an accountant.

 

[dpearce4]

I am afraid that may not suit you, but I would not go into business until I absolutely had to.

At present, in no way could HMRC contend that you are in business because. After all you have yet to recoup your initial outlay. HMRC are only interested in getting tax off people . You dont owe any tax because you have made no profit!

Once you have recouped your initial outlay of £8000 plus any other reasonable expenses such as mileage, telephone etc, you might consider registering a business.

I would keep a record of my expenses so I might know better when that time had arrived. Only at that point I might consider paying my accountant a visit.

Meanwhile I would not bother to register for VAT and I would not bother to spend money consulting an accountant.

Problem is with that is if the initial outlay was on just hives or mostly hives. The hives are able to last for a long number of years and should classed as a tangible asset, and as such should go on the balance sheet with the value less vat depreciated over the expected lifetime, generally set at 10years, so even though the outlay was £8,000 that's not an actual loss only 10% is set off against your income. So even if you only took £4k in turnover, net of vat, less expenses lets say £2k for example then the £800 depreciation the tax man could say you actually made a profit of £1400 and want 20% of that if your normal income is less that £40k or 40% if its higher than that.

Hope that isn't to confusing for you all.

 

[jackstraw]

VAT and the supply of bees in hives

There have been several comments about whether bees sold in a hive would have the whole sale zero-rated or whether the hive should be standard-rated

The VAT position of standard-rated packaging supplied with zero-rated goods is determined under the general rules on mixed supplies.

For VAT purposes we need to think of bees as ‘goods’ being sold and the nuc/hive as ‘packaging’. The sale under VAT terminology is a ‘supply’

Normal and necessary packaging is treated as part of the goods which it contains. The price which the customer pays is treated as a payment for the contents of the packaging alone. This means that if a supply of the contents is zero-rated, zero-rating also applies to the packaging.

However, if the packaging is more than normal and necessary, there is a mixed supply and whilst the supply of the contents is zero-rated, VAT is due on the packaging.

There is a concession whereby packaging which is considered more than normal and necessary may be treated as zero-rated but this can only be applied when the packaging is not being charged for separately, the cost of the packaging is not greater than 20% of the total cost of the supply and the packaging does not cost more than £5.00

Whilst this concession is unlikely to apply to the supply of bees, it does illustrate the thinking of HMRC and how they might apply the normal and necessary packaging rule. To satisfy a claim of zero-rated supply HMRC are looking at packaging being very cheap and the contents worth in the region of 80% of the total supply.

If one was to buy bees from a main supplier, either a breeder or a firm such as Thornes I would suggest that normal packaging would be cardboard or plastic, the irreducible minimum to keep the bees safe and secure in transit. If this is the case, and if I were planning on VAT registration I would check, this then would be the normal and necessary packaging for the supply of bees and anything more would be a separate supply.

My opinion therefore is that when bees are supplied in cheap possibly disposable packaging the whole supply would be zero-rated. Where the bees are supplied in a pine or cedar hive then the bees would be zero-rated and the packaging would be standard rated. Anything in-between should be considered using the above guidelines.

Should anyone be trading and VAT registered they are always able to obtain a written ruling from HMRC clarifying the position

 

[dpearce4]

Jack that is a great post.

 

[lakelander]

Jack that is a great post.

 

[jenkinsbrynmair]

My opinion therefore is that when bees are supplied in cheap possibly disposable packaging the whole supply would be zero-rated. Where the bees are supplied in a pine or cedar hive then the bees would be zero-rated and the packaging would be standard rated. Anything in-between should be considered using the above guidelines.

Great post - and can't but agree with your conclusion. Thanks

 

[Bates]

Show me a supplier that is charging VAT with their nucs & hives for the packaging? I do not see any (that are registered that is).