HMRC launch enquiries into farmhouse B&B's- May 2009
HMRC have this year started a wave of enquiries into farmhouse Bed & Breakfasts claiming that the B&B and the farm are one and the same business, even where the B&B is run, say, by Mrs Farmer and the farm is run by a partnership. They are claiming that the two businesses are being artificially split in order to avoid charging VAT on the B&B.
If you do receive an enquiry letter of this nature, please pass it on to us immediately. In the meantime, here are a few things you can do in order to protect yourself from any future claims:
- make cross charges from the farm to the B&B for its use of the farmhouse (e.g. a rent) and to cover services (e.g. telephone, heat & light etc) and these should be physically paid if possible (doesn't have to be at a commercial rate). These cross charges will have VAT added to them which the B&B will not be able to recover but this is a small price to pay
- where the B&B has a website then it is VERY important to make sure this is being paid for by Mrs Farmer and not by the farm partnership
- the B&B should have its own bank account in the name of Mrs Farmer only
- it would be useful to have a (simple) document from the farm allowing the use of the farmhouse by Mrs Farmer for the B&B
- any staff employed by the B&B can be included on the farm payroll but any contracts must show Mrs Farmer only as the employer
Clearly, the more points in your favour the more chance you have of a successful challenge.
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