For many people, owning a horse or pony is no different to owning a boat or a classic car for personal use or enjoyment, with no taxation consequences. But there are rules that horse owners and others with related interests should be aware – and which could have tax implications.
Livery and the letting of loose boxes or grazing can be problem areas with regard to tax. There is a fine line between having one or a few spare loose boxes to rent and the provision of livery, where there may be more complex tax implications.
The VAT position
Nick Hart, a VAT Director at Saffery, comments:
“The VAT position for livery businesses is determined on the particular facts of each case, addressing both contracts with customers and the balance of services. These could cover grazing, stabling and ‘keep’ for example.
“Grazing rights on their own can be zero-rated as animal feed, and stabling can be exempt, but standard-rated if the stables in their own right have been ‘opted to tax’ or are part of a larger holding that has been, while ‘keep’ or ‘care’ is standard rated.
“The possibilities are complex and HMRC guidance is not always clear. For example, for DIY livery, where there are elements of stabling and grazing but no ‘keep’, the official view is that there are two separate supplies at different VAT rates and the consideration can be apportioned. Where there is ‘keep’ also then this is a single supply that is standard-rated with no apportionment. HMRC is often interested in land-related supplies where other services are also being provided and stabling and livery is no exception. Should HMRC become aware that the customer receives other benefits along with the land, they would generally be quick to suggest the service should be all standard-rated.”
There is still some uncertainty surrounding HMRC policy and VAT case law, and those supplying ‘keep’ should maintain records for feedstuffs and un-opted stabling, in case there is an opportunity in the future to reclaim VAT overpaid on these.
Broadly, the VAT position for those providing stabling, grazing or livery is as follows:
- The letting of a stable alone is exempt from VAT, subject to the ‘option to tax’.
- Stabling plus livery might be VAT exempt, only if the stabling is the predominant element.
- DIY livery is two supplies (of zero-rated feed and exempt or standard-rated stabling) and charges need to be appropriately apportioned.
- The supply of ‘keep’ (or care or livery services) including stabling and feed is one standard-rated supply with no apportionment.
The receipt of such income will also be potentially liable for income tax and should be reported on the tax return of the appropriate individual or business, and there may also be inheritance tax implications.
“Where land is let to others to graze their horses, this income will potentially be liable to income tax. This may not increase your income tax burden significantly, but it may impact on other arrangements such as inheritance tax, particularly if the land is let or used as part of an agricultural holding.
“Such property would normally be fully relievable for inheritance tax, but only if the property is used for agricultural purposes. Grazing by cattle or sheep would enable the land to qualify, but it is unlikely that horses grazing the land would. Be warned therefore that a little extra income now might add up to a costly capital tax bill in the future.”
Certain other specific transactions may also be liable for income tax, such as nomination fees for a stallion. While it may be possible to offset expenses against such fees and reduce them to nil for tax purposes, those expenses must be directly attributable to the generation of specific income and not towards the wider private use or enjoyment of the animal.
Nick Hart adds:
“The system is complex and there are a number of anomalies within it. We would therefore urge anyone with concerns about VAT or income tax in relation to equestrian issues to speak to their professional adviser.”