There are times when a throwaway comment develops into an interesting tax query.
During a lighthearted conversation with a client farmer, a business proposal was raised. It was suggested that income tax would not be payable on the sale of topsoil. The rationale put forward was that since the farmer was selling part of his land, the proceeds would fall under capital gains tax. In this case the net income after costs was below the current threshold of £10,600 for the tax year 2011/12 (ending 5 April 2012) so no tax would be payable.
As fate would have it, within a fortnight we had another query concerning this very topic.
Unfortunately, our clients were disappointed when the tax position was explained.
The tax position regarding topsoil lifted from your land, just like, for example, the sale of stones obtained from your land, is that the transaction is deemed to be a trading activity. As such, income must be included in the farm’s profits, and is subject to both income tax and national insurance.
Furthermore, if you are registered for VAT, then the selling price must include VAT. This will mean raising a valid VAT invoice, and ensuring the transaction is reported on your VAT return as normal.
If you would like to discuss this please contact us on 028 44 616321 or e-mail us at firstname.lastname@example.org .