The VAT agricultural flat rate scheme is a variant of the VAT flat rate scheme specifically designed for farmers and other activities relating to agricultural production (such as horticulture). Farmers cannot join this scheme if the value of their non-farming activities is above the VAT registration threshold. The amount of VAT paid on business expenses becomes irrelevant to the VAT returns.
It is a condition of joining the scheme that farmers who are registered for VAT must have their registration cancelled. However, although the farmers will no longer be able to reclaim input tax they can charge a flat rate addition (FRA) of 4% even on sales that would otherwise be zero-rated for VAT. The FRA is not technically VAT, and the farmer is allowed to keep it. This addition acts as compensation for the loss of input tax the farmer would have been able to reclaim if registered for VAT.
Businesses can join the AFRS when their annual turnover for farming related activities is below £150,000 and must leave the scheme when annual turnover for farming related activities exceeds £230,000. Businesses with turnover that exceeds the VAT registration threshold of £85,000 for non-farming related activities cannot join the scheme.
Having worked with a variety of agricultural companies we are on hand to help, get in touch with our accounts department to find out more.