The agricultural flat rate scheme

The Agricultural Flat Rate Scheme lets a farmer stay outside VAT registration, file no VAT returns and reclaim no input tax, but add a flat rate addition of 4% to the price of qualifying farm goods and services sold to VAT registered customers. The farmer keeps the addition as compensation for the input tax it cannot recover, and the customer reclaims it as if it were input tax. You can join only if your farming turnover is below £150,000, and you must leave once it exceeds £230,000.

How does the flat rate addition work?

HMRC’s guidance is VAT Notice 700/46. The scheme has run in the UK since 1 January 1993 and is an alternative to VAT registration, not a way of accounting for VAT while registered. A certified flat rate farmer does not charge VAT at all. Instead it may add the flat rate addition (FRA), currently 4%, to the sale price of designated goods and services. HMRC’s manual at VATAFRS0110 notes that any change to the percentage would be made by Treasury order.

The addition is not VAT and is not a rate of VAT, which is why it can be charged on produce that would be zero rated if the farmer were registered (Notice 700/46, paragraph 5.1). It is not meant to reimburse all the VAT a farmer pays on purchases; it is a fixed compensation (paragraph 1.4). Charging it is optional, and if you charge it you keep it. Nothing is paid over to HMRC.

You must not charge the addition:

• to customers who are not registered for VAT, or to other flat rate farmers, because they cannot reclaim it
• on sales of machinery, or of real property, or on repairing and maintaining other farmers’ buildings
• on supplies from non farming activities such as bed and breakfast or farm visits

The addition can be charged on sales to business customers outside the UK (paragraph 6.1).

Who can join the scheme?

Paragraph 1.6 sets the entry rules. You must:

• be in business as a farmer supplying qualifying goods, or goods and services, not services alone
• cancel any existing VAT registration, provided your non farming turnover is below the VAT registration threshold
• not have been convicted of a VAT offence or penalised under section 152 of the Customs and Excise Management Act 1979
• not have been assessed for a penalty under section 60 of the VAT Act 1994 in the three years before applying
• have annual farming turnover below £150,000

Qualifying activities are set out in the VAT (Flat Rate Scheme for Farmers) (Designated Activities) Order 1992 and summarised in section 3 of the notice: crop production including horticulture, viticulture and nurseries; stock farming including poultry and beekeeping; forestry up to conversion of felled timber into sawlogs, fencing material and firewood; and fisheries such as fish farming. Linked services qualify too, including harvesting, packing and drying produce, storage, stock minding, hiring out equipment and crop spraying. Processing qualifies only where you grew the product yourself.

The scheme is closed to businesses that mainly buy and sell or train animals, that are one step removed from farming (such as dairy processors buying in milk, or sawmills), to marketing co operatives and to sellers of peat or topsoil (paragraphs 1.7 and 3.4). Pony trekking and riding lessons are not designated activities.

Joining is a choice. A farmer who qualifies can stay VAT registered instead (paragraph 1.8).

What happens to non farming income?

Holiday lets, bed and breakfast, farm visits and riding lessons are non farming activities. If their taxable turnover is below the registration threshold you can still be a flat rate farmer, but you cannot charge VAT or the addition on them (paragraphs 4.1 and 4.3). If it is above the threshold you cannot join, and an existing member must leave and register (paragraph 4.2).

Paragraph 4.4 allows the non farming side to be registered separately if it is genuinely a separate business run by someone without a flat rate certificate, for example a partnership or company that owns the holiday cottages. That entity cannot reclaim VAT on farming costs, and on shared equipment it can reclaim only the share used in its own registered business (paragraph 4.5).

How do you apply?

Apply on form VAT98. HMRC either issues a certificate confirming the start date or explains why it has refused. A certificate takes effect from the date HMRC receives the application, you can apply up to 30 days in advance, and HMRC asks you to allow up to three weeks. If you are VAT registered, the certificate cannot start before your registration is cancelled (paragraphs 2.1 and 2.2).

When you deregister to join, you do not pay VAT on stock and assets on hand (paragraph 5.5). VATAFRS0115 identifies the relief as paragraph 8(3) of Schedule 4 to the VAT Act 1994, and lists the rest of the legal framework: section 54 of the VAT Act 1994 and regulations 202 to 211 of the VAT Regulations 1995. A refusal to certify can be appealed to the tribunal under section 83(m).

What must a flat rate invoice show?

If you charge the addition you must issue an invoice to your VAT registered customer. It is not a normal VAT invoice; paragraph 5.4 requires:

• an identifying invoice number and the date of sale
• your flat rate certificate number, name and address
• the customer’s name and address
• a description of the goods or services
• the price excluding the addition, and the rate and amount of the addition

Customers may self bill under the rules in Notice 700/62. Keep normal business records and copies of every invoice showing the addition for six years (paragraph 5.6).

The buyer reclaims the addition on its VAT return as though it were input tax, but only with a valid invoice. VATAFRS0250 tells officers to disallow claims where no invoice was issued, where it lacks the required details, or where the addition was charged on goods that are not designated. Section 67 of the VAT Act 1994 provides a penalty for issuing a flat rate invoice without a valid certificate or without the required details (VATAFRS0255).

Is the scheme worth it? A worked example

Illustration only. A livestock farmer sells £90,000 of stock a year to VAT registered buyers and £5,000 to unregistered smallholders. Purchases carry £2,000 of VAT.

	Flat rate farmer	VAT registered
Addition charged and kept (4% of £90,000)	£3,600	Nil
Input tax recovered	Nil	£2,000
VAT returns to file	None	Yes

Here the scheme leaves the farmer £1,600 better off and removes the returns. The answer reverses for a farmer facing a large VAT bearing investment, such as a new building, or selling mainly to unregistered buyers, because no addition can be charged to them. The comparison is the addition you can charge against the input tax you give up.

When must you leave, and can you rejoin?

You must leave if annual farming turnover exceeds £230,000, or if at the end of any month farming turnover for the previous 30 days exceeds £230,000. You must also leave if your non farming supplies make you liable to register, if you stop producing qualifying goods, or if the business changes hands or legal form, such as a sole trader incorporating (paragraph 7.2). You must tell HMRC in writing within 30 days of the certification anniversary when you become ineligible. Leaving voluntarily requires at least a year in the scheme (paragraph 7.1).

A farmer who has registered for VAT since leaving can rejoin only once three years have passed, or after one year if the tax due on assets on hand is under £1,000. If you have not registered since leaving and were not required to, you can rejoin at any time (paragraph 7.4).

What are the common mistakes?

• Charging the addition to unregistered buyers or to other flat rate farmers.
• Adding it to non farming sales, machinery sales or contracting work that is not a designated service.
• Invoices missing the certificate number, so the buyer’s reclaim is refused.
• Not leaving when farming turnover passes £230,000, or when the business incorporates and needs a new certificate.
• Confusing this scheme with the VAT flat rate scheme for small businesses, which is a way of calculating VAT for a registered business.

Produce sold through a farmers’ group goes at the agreed price without the addition; the group pays the addition to certified members and reclaims it. Auctioneers acting in their own name under the auctioneers’ or margin scheme can be charged the addition; otherwise it is charged to the VAT registered buyer (section 8).

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Related Accountapedia entries

• Farm diversification: the tax implications
• Charging VAT while waiting for a VAT number
• Cash accounting or Flat Rate Scheme for VAT
• Zero rated vs exempt supplies
• Should I leave the VAT Flat Rate Scheme
• Red diesel: who can still use it

Sources

• GOV.UK: Agricultural flat rate scheme notice 70046
• GOV.UK: www.gov.uk
• GOV.UK: www.gov.uk
• GOV.UK: www.gov.uk
• GOV.UK: www.gov.uk
• GOV.UK: www.gov.uk

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.