Farmers who diversify into selling Christmas trees or letting land for seasonal attractions need to be aware of the tax implications.
Accountants Saffery Champness has warned that moving into seasonal activities that are connected with, but not necessarily directly related to, the main business activity can throw up some tax pitfalls.
Martyn Dobinson, partner and a member of the firm’s land and rural practice group, said this could affect farmers who were letting land for seasonal attractions, staging a Christmas market or selling Christmas trees, holly, logs and other seasonal products.
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There are also implications that need to be considered if charging rent to another operator for the sale of Christmas trees or running an event such as a carol concert or Christmas fair.
“It is vital to accurately declare these activities in the appropriate sections of the tax return,” said Mr Dobinson.
“As well as paying the correct amount of income tax, non-agricultural use could impact on the inheritance tax status of the business.”
To be eligible for Agricultural Property Relief (APR) relief, land and buildings need to be occupied for agriculture, so consideration needs to be given as to the potential impact of non-agricultural use.
HMRC is understood to have recently stepped up its investigations into claims for APR.
Christmas trees
Landowners should also be aware of the trap of assuming the sale of Christmas trees is exempt from income tax under the woodland exemption.
Christmas tree production and sales are taxable, with the exception of Christmas trees produced from selling the tops of felled trees from commercial woodlands or thinnings.
A farmer selling Christmas trees will also need to account for VAT at the standard rate on the sales price, rather than the zero-rate which applies to sales of crops and livestock.
Similarly, if a farmer has “opted to tax” land which is let to a third party for them to undertake a commercial venture, the operator will also need to pay VAT on the agreed fee for the use of the land concerned.
If additional services are provided in conjunction with granting a letting or a licence to occupy, then the whole supply may become subject to VAT even if there has not been an “opt to tax” election.
The VAT liability on the hire of pitches at organised events has been the subject of several court judgements including that of Craft Carnival [2016] UKUT 0433 (TCC).
In that instance, it was ruled that VAT was due because the supply went beyond that of a simple licence to occupy.
Seasonal activity can also require temporary staff, and any staff taken onto the payroll – even if for just a few days, and no matter how they are paid – will be subject to normal PAYE rules and Real Time Information reporting.
