Author Archives: Malcolm Peters

Countryside Productivity Small Grant Scheme

The deadline is almost upon us to claim from the Countryside Productivity Small Grant Scheme. Applications need to be submitted before Midday on 14th March 2018.

  • Who can claim? – Farmers in England
  • What’s it for? – Purchase of smaller machinery and equipment which has been identified as helping achieve improvements in either: animal welfare, resource efficiency or nutrient management.
  • How much can I claim? – Grants are from £3,000 to £12,000 and are up to 40% of the total costs.

For further information and a full list of eligible items please see the Small Grant Handbook on the website.

Could your hobby be a trade?

Could your hobby be a trade?

Do you make money doing what you love?

Thanks to a huge number of popular online platforms, more and more people are now able to make a bit of extra money in their spare time.

Whether it’s buying and selling items on eBay, selling your crafts on Etsy, or listing your talents on People Per Hour, your hobby could provide extra income for you to put to one side for a rainy day.

But with HMRC cracking down on tax evaders, how do you know when your pastime has become a business activity?

What HMRC have to say

There is no single definition as to what counts as a business, or any specified allowance you may earn before you need to register as one. This can lead to a lot of confusion where tax liabilities are concerned.

Tax specialist at BDO Global, Dawn Register, says that “few people consider the tax implications of selling items through eBay and Amazon, Gumtree and Etsy, and may think it is just a hobby.

“Getting it wrong could involve paying back taxes, late payment interest and penalties to HMRC,” says Register. So, figuring out the turning point at which your hobby becomes a taxable trade is absolutely vital.

HMRC’s “badges of trade” are a good starting point. These are the semi-official criteria for determining whether or not an activity should be classed as business.

HMRC will consider:

  • Whether or not the item was purchased solely to make a profit from selling it.
  • How many transactions you make, for example if your sales are regular and repeated, or if you just sell things every now and then.
  • If you bought the asset with the intention of selling it for a profit, or if it is no longer useful to you or brought you ‘pride of possession’
  • How the sale was carried out, either like a trading organisation or as an effort to raise emergency funds
  • If you made any modifications, repairs or improvements to the item, and if these were made in order to sell the item or sell it for a greater profit.
  • The time between you purchasing the asset and putting it up for sale, which will suggest whether you bought the item to sell off quickly or if you originally planned to keep it.
  • If you borrowed money to buy the asset and if the resale was necessary to pay back the loan.
  • Whether the item was bought yourself, inherited, or received as a gift.

If HMRC decide your hobby is in fact a trading operation, you will have to pay tax on your profits.

In the past, you needed to report to the taxman for every single pound you made. This has changed with the introduction of the Trading Allowance introduced earlier this year. People now have a £1,000 tax free allowance for “trading activities”. This £1,000 is turnover and not profit – please remember that.

Changes to the Trading Allowance

Making every effort to encourage a “digital and sharing economy”, the government announced that they would be instating this new allowance for trading income. The bill was published in September, but applies to activities made since April 2017.

Simplifying income tax obligations for hobby traders, the allowance means those who turn over less than £1,000 a year from trading will no longer have to pay income tax. They’ll also no longer be obliged to register their business or file any tax returns.

If your annual turnover exceeds £1,000 at any point, however, you will need to complete a self-assessment form.

Are you a trader?

If you believe your hobby may be a trade, you’re obliged to notify HMRC yourself. This should be done by the end of the tax year in which you started trading.

For example, a business that starts trading between 6th April 2017 and 5th April 2018 would need to register with HMRC by 5th October 2019.

You can register your business online, and you’ll also need to register for Income Tax and Class 2 National Insurance Contributions.

Establishing your hobby as a trade does not have to be complicated process. Our highly experienced team, here at Kelsall Steele can guide you through every step of the process. Call us today on 01872 271655 or email

VAT refunds if your customer won’t pay

Many business owners tell us that far too much of their time is spent chase up customers on their invoices. When you’ve provided goods or services, you’re entitled to receive your money by the due date. But if they refuse to pay you for your work, or if your client goes bust, how do you account for VAT charged?

First, make sure you’re on the right VAT system for your business

 Cash Accounting Scheme

Does your company turn over less than £1.35million each year? Do you send over 30, 60, or 90-day invoices? If so, you should be on the cash accounting scheme.

If your business allows deferred payment when a customer places an order, you are always at risk of that customer not paying. This will have a damaging effect on your company’s cashflow because the money you’re spending is not being replaced by customers paying you.

With the standard VAT system (the so-called “accrual” scheme), you’ll have to include (and pay) the VAT you’ve charged on your invoices when you submit your VAT filing to HMRC. If your customer does not or cannot pay, you will have to wait months to receive a credit against the VAT you’ve paid on your bill because of the current rules regarding refunds.

The cash accounting system, unlike the standard VAT system, means you only have to pay VAT on invoices which have actually been paid. You don’t even need to ask HMRC to switch to this scheme – just talk to Kelsall Steele.


Flat VAT Schemes

HMRC launched the flat VAT scheme to make working VAT out simpler for the companies they collect from. The flat rate pulls in near exactly the same amount as the standard VAT scheme for HMRC but using it means working out your bill is a lot less time-consuming.

Under this scheme, you’re not able to claim back the VAT on goods and services your business buys (input VAT). Instead, you pay a pre-determined percentage of your turnover and VAT every quarter.

Say you invoice a customer for £1,000 + VAT, so £1,200 in total. You would keep 13% (£156 if that was your flat rate) of the invoice for your quarterly VAT bill.

On the flat rate VAT scheme, had this customer not paid you, you subtract the flat rate VAT element (£156) from VAT charged (£200) to work out your special allowance under the flat rate scheme, in this case £44. You then include it in your VAT account on the next return.


When can I make a claim?

To claim back against bad debt, certain criteria must be met.

If the invoice is more than 6 months’ overdue for payment, it has been officially written off in your accounts, and the output VAT on the invoice has been declared and paid to HMRC on a VAT return, you can make a claim.

Records to keep – even after your claim

Once you’ve submitted your bad debt claim, you still need to keep your evidence organized. HMRC may enquire about your request up to four years after you make your claim. Make sure you file:

  • A copy of the VAT invoice you’re claiming relief on
  • How much you are writing off as bad debt
  • The VAT on which you have made the claim
  • The total amount of VAT you charged on the sale
  • The customer’s name
  • The invoice number
  • The invoice date
  • Any part-payment received, shown separately on each invoice
  • The VAT period you claimed relief in
  • The VAT period in which you originally paid the VAT

What happens if your customer eventually pays?

If you’ve already received your VAT refund and then your customer finally pays you what they owe, you’ll need to let HMRC know.

Just put the total you’re repaying in Box 1 of you VAT return. If your customer pays you the full amount, you pay back the VAT to HMRC in full. For a part payment, you would need to pay the VAT back on the part payment.

Talk to your accountant

If you want to speak to us about all aspects of credit control and VAT, call us at any time on 01872 271655 or email

Small Dairy Farmers Scheme

Small Dairy Farmers Scheme

Calling all Dairy Farmers!

The Small Dairy Farmers Scheme provides support to eligible dairy farmers who apply for a one off payment.

A fund of £8.5 million has been made available by the Rural Payments Agency and you can apply for a share in this if you produced less than one million litres between 1st April 2015 and 31st March 2016 and are still milking cows.

The rate of payment will calculated once all applications have been received, RPA are aiming to make payments by the end of July 2017.

The application form and further details can been seen at

Closing date for applications is 31st May 2017.

If you would like further information or help with the application please do not hesitate to contact Malcolm Peters or one of his team.


VAT Flat Rate Scheme – Limited Cost Business

Are you using the VAT Flat Rate Scheme? If so the new rules could affect you!

From the 1st April 2017 HMRC have changed the rules. From this date if you are using the VAT Flat Rate Scheme you have to check for each VAT period to see if you are a ‘Limited Cost Business’.

Depending on whether you fall into or out of the criteria for the given period, will depend on whether you will have to use 16.5% or your normal Flat Rate Scheme percentage. It may be that you will fluctuate between the 16.5% and the normal rate each quarter.

You will be classed as a limited cost business if the amount you spend on relevant goods including VAT is either:

  • less than 2% of your VAT flat rate turnover
  • greater than 2% of your VAT flat rate turnover but less than £1,000 per year, this is time apportioned, if you prepare quarterly returns the amount is £250

For each period you will need to calculate:-

  • your turnover
  • the cost of goods, these are purchases which are exclusively used for business use,

There are some types of expenses which cannot be included in the costs these goods include:-

  • vehicle costs including fuel, (unless you’re operating in the transport sector using your own, or a leased vehicle)
  • food or drink for you or your staff
  • capital expenditure
  • goods for resale, leasing, letting or hiring out if your main business activity doesn’t ordinarily consist of selling, leasing, letting or hiring out such goods
  • goods that you intend to re-sell or hire out, unless selling or hiring is your main business activity
  • any services

If you’re a limited cost trader this means that you may pay more VAT than you do on standard accounting. If you would like us to check to make sure the Flat Rate Scheme is still appropriate for you or if you would like further advice please get in touch.

Agricultural Property Relief

Inheritance Tax and Agricultural Property Relief

Will your property qualify?

With many farmers seeking to diversify and maximise returns from farm assets, they may have inadvertently taken these assets out of what qualifies as agricultural property, and hence affected any claim for Agricultural Property Relief (APR).

Eligible Property

Agricultural property is broadly defined as agricultural land or pasture, but also includes:

  • Woodlands and any building used in connection with the intensive rearing of livestock or fish;
  • Cottages, farm buildings and farmhouses of a character appropriate to the property;
  • Land and buildings used for short rotation coppice;
  • Land and buildings taken out of farming for management under a Government Habitat Scheme;
  • Breeding, rearing and grazing of horses on a stud farm.

Examples of any such diversification may include farm shops, campsites, renewable energy, or indeed the letting of former farm buildings for workshops or studios.

The result of this could well be that a portion of what was previously thought to be “farm” property would not qualify for Agricultural Property Relief and hence be subject to Inheritance Tax at 40%.

Should you continue farming?

In addition, should any decisions made involve a significant reduction in the level of farming activity being undertaken, this may impact on an APR claim in respect to the farmhouse itself. Should the farming activity be reduced to such a level that HMRC successfully argue that there is no actual farming, the house then would not qualify as a “farmhouse” and APR will likely be denied.

HMRC are increasingly looking at farmhouses and whether they meet the eligibility criteria (i.e is the house of a character appropriate to the overall holding and the level of farming activity?) In addition there may be issues surrounding who in fact occupies the property and what they do in relation to the farm enterprise.

Indeed if you are involved in a farming partnership, it may be that the older generation wish to retire. Any such move may affect an Agricultural Property Relief claim on the property those individuals occupy, as retirement may mean they will not be classed as “farmers” and hence the property will not qualify as a “farmhouse”.

Nil Rate Band

In any event the first £325,000 of an Estate, referred to as the Nil Rate Band or NRB, is free of Inheritance Tax. And in certain cases it may be possible to transfer an element of the unused NRB, available where the surviving spouse or civil partner dies on or after 9 October 2007. For married couples, the first death can have occurred at any time before or after that date. The relief therefore applies where the first death occurred under IHT, Capital Transfer Tax or Estate Duty and there was unused NRB.

It is possible then that the surviving spouse or civil partner may be entitled to a total NRB of £650,000, but will this be enough?


Very often, family farming businesses have little cash held in reserve, with most of this tied up in property, stock and machinery. A surprise tax bill, on top of the emotional stress of losing a family member, can be extremely upsetting at a time where there is little cash available to settle it.

If you want to avoid any unwanted, surprise IHT bills, come and talk to us. We can help you PLAN NOW, TO AVOID PROBLEMS IN THE FUTURE. 

Basic Payment Scheme

Basic Payment Scheme

Focus On Farming – Basic Payment Scheme

The Rural Payments Agency has confirmed that 33,000 claimants have received their full 2015 Basic Payment Scheme claim and we hope that you are amongst those. It is our understanding however that others of you have not been so lucky and have received notification that your payment will be delayed, some have heard nothing at all!

With commodity prices still low and cash-flow positions for many farmers at crisis point, the receipt of the Basic Payment Scheme payments will undoubtedly come as a relief. A large percentage of farmers are however likely to be kept waiting for their payments until well into January.

The payment window for the Basic Payment Scheme runs from December 2015 to June 2016, however if payments are not made in December or January, many farmers are likely to have issues dealing with forthcoming tax bills, feed bills, loan payments, rents, etc, not to mention ongoing business costs.

Dairy farmers are receiving less than 2/3 of the price they were a year ago, often equating to thousands of pounds a week and even the best livestock producers struggling to avoid a loss in the year to 31st March 2015. Many are having to negotiate additional finance with their banks, or restructure current borrowings.

If you would like to discuss the Basic Payment Scheme, or any other issue, please contact Malcolm Peters, tel 01872 271655, email

Tax Planning for Agriculture

Pre Year-End Tax Planning for Agriculture

There are now less than two months to go until the end of the 2014-15 tax year, and businesses should plan carefully to utilise annual tax allowances and reliefs to their maximum.

Capital Expenditure

Many farming businesses have accounting year ends of 31 March or 5 April and for businesses considering expenditure on capital equipment it could be worthwhile ensuring this expenditure is incurred in the current year. The current 100% Annual Investment Allowance (AIA) on qualifying capital expenditure is £500,000 and under current legislation this will remain until 31 December 2015 when it falls to £25,000.

Care should be given to expenditure already incurred in the past accounting year, and also to consider the business’s accounting date which will affect the amount of relief available.

Be aware that not all capital expenditure qualifies for relief at 100%, different types of expenditure may only qualify for relief at 18% or even 8%.

Timing of expenditure is key, relief is only given when the obligation to pay becomes unconditional.

Similarly, consider deferring the disposal of equipment until after the year-end as the proceeds may generate an unwelcome tax liability.


The amount and value of stock held at the year-end can have a significant impact on profits and tax liabilities. The stock adjustment is necessary to ensure that costs incurred before the year end but which will not give rise to income until a later period, are carried forward to set against the income when it arises.

Stock should be valued at the lower of cost or net realisable value. For cattle, HMRC accept 60% of market value as a deemed cost, and for sheep and pigs a 75% value is used by most businesses. This method is more straightforward for home-reared animals, however, there are other methods including actual cost of production and net realisable value if a profit is not expected to be made. Actual cost of production can result in valuations considerably less than deemed cost, so there is an opportunity to reduce the value of closing stock to bring down the tax bill.

The timing of sales could be crucial in determining the period in which the profit will be recognised. If high profits are expected in the current tax year, delaying the sale until after the year end will result in the value being reduced by 25% in the accounts, with profits delayed until the following year.

Accrue for expenditure

Businesses should consider bringing forward any business expenditure which it is intended to incur after the year-end, for example maintenance of buildings and yards, in order that tax relief may obtained a whole year earlier.

Similarly, farmers should think carefully about the timing of any sales made around the year-end. Profit is only recognised when the sale takes place, so simply deferring a sale until after the year end can reduce current year profits whilst not significantly affecting cashflow.

Tax Payments

To assist cashflow, farmers may consider the likely profits for the current year and whether tax payments on account can be postponed. With milk prices at their current level it may be that profit levels will fall and the tax payment due on 31 July can be reduced.

Child Benefit

The clawback of Child Benefit already paid will apply where one individual in a household has an income in excess of £50,000. If possible, a husband, wife and partners should equalise income between them, to ensure any Child Benefit restriction is kept to a minimum.

Restriction of loss relief

If a trading loss is anticipated, when considering the most effective use of this note should be taken that relief on trading and certain other losses is now restricted to the higher of 25% of net income and £50,000 a year for active participants and £25,000 for non-active participants.

Capital Gains Tax

The annual exemption for the 2014/15 tax year is £11,000 (rising to £11,100 in 2015/16). Each individual therefore is able to make a Capital Gain of this amount without incurring any CGT liability. Spouses may wish to consider transferring an interest in an asset to each other prior to any disposal to ensure both Annual Exemptions are maximised, which could save tax at 28%.

Pension Contributions

Taxpayers may wish to consider their pension funds and if cash is available, make additional contributions into these funds before 5 April, minimising any Higher Rate Tax.

If you would like any further information on any of the points raised in this article, please don’t hesitate to contact Malcolm Peters at or on 01872 271655.