Review of livery service agreements needed for VAT and IHT purposes
12 Oct 2022
Structuring livery services so they are exempt from VAT can often have consequences for IHT relief, says Nick Hart, VAT Director and a member of the firm’s Land and Rural Practice Group, so careful consideration is required in order for the best outcomes to be available in this specialist area.
Regarding the VAT position of livery services, they can be structured so that they are exempt from VAT, with no VAT chargeable to the horse owners.
If the supply is by way of a ‘grant of an exclusive right’ or ‘licence’ over a specific stable, and ancillary care elements are included within the agreement, then the whole supply can be treated as VAT exempt provided an option to tax election has not been made over the stables. The agreement with the horse owner should reflect that such exclusive use of a specific stable or a licence to occupy is granted and that this grant is very much the predominant element of the services being supplied.
Where the exclusive right or licence is granted first and foremost, the level of care included does not affect the VAT position of the supply. This would only be the case for specialist yards such as stud farms, racehorse stables and specialist schooling stables whose livery services are subject to the standard rate of VAT.
Also, a supply which comprises only the provision of grazing rights is zero-rated for VAT purposes (0% VAT charged).
With regard to IHT, 100% relief is available where an asset meets the conditions for business relief, including being held for the requisite amount of time.
Whether a livery business can qualify for business relief is dependent on the facts in each specific case.
The main factor in determining whether there is a business for business relief purposes, or whether it is a passive, non-qualifying investment, is the level of services provided. At one end of the scale, livery businesses that are essentially just grazing agreements, and where the owners take all responsibility for their horses, are seen as passive activities that will not qualify for business relief. A livery business that is run as a commercial operation however and which provides additional services such as regular health checks and administering medication, feeding and mucking out, will be more likely to qualify for relief.
Nick Hart adds:
“It should be noted that the grant of an exclusive right or licence over a specific stable, as outlined above, without any additional services being offered, is very much a passive activity so that in achieving VAT exemption through making such a grant, your IHT position may be impacted.
“Your professional advisor should also periodically review your particular agreements and, given the latest case law and HM Revenue & Customs (HMRC) guidance, advise whether business relief should be available, the steps that could be taken to strengthen a case for business relief, and the records that should be maintained and provided to counter a possible challenge from HMRC over qualifying for business relief.”