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Important changes to the Agriculture Flat Rate Scheme

2nd Dec 2020 / By Charlie Dewhirst

New conditions for entering and exiting the Agricultural Flat Rate Scheme (AFRS) are being introduced from January 1, 2021.

The AFRS is an alternative to standard VAT registration intended to reduce the administrative burden for small farmers. Businesses registered under the AFRS do not account for VAT or submit returns and so cannot reclaim VAT on costs.

To compensate for this, AFRS businesses charge and retain a 4% flat rate addition on goods and services sold to VAT-registered customers.

With effect from 1 January 2021:

  • Businesses can join the AFRS when their annual turnover for farming related activities is below £150,000.
  • Businesses must notify HMRC once their annual turnover for farming related activities exceeds £230,000. Once this threshold has been breached the farming business must deregister from AFRS and register for VAT instead.
  • If turnover from non-farming related activities exceeds £85,000, a business must leave the AFRS and register for VAT instead. Non-farming activities can include the provision of bed and breakfast or holiday accommodation, charges to visit the farm, riding lessons etc.

The changes are a simplification of the scheme and not driven by any other policy or legislation (or Brexit).

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