Farmers warned of tax and legal pitfalls when trading machinery

Farmers are making the most of the buoyant second-hand trade in machinery, which is strong throughout Europe, but have been warned to be careful over VAT and legal pitfalls.

According to West Country farm accountant Old Mill, selling surplus machinery is a good way to free up cash, but usually comes with an increased tax bill and is not without its risks, particularly when dealing with overseas buyers.

“If you sell any equipment you will usually have to pay Income Tax or Corporation Tax on the sale price,” said Andrew Vickery (pictued above), head of rural services at Old Mill. “Many people think that they are dealing with Capital Gains Tax instead, and can therefore make use of their CGT allowance, but that simply isn’t the case.”

The current strength of the second hand machinery market is reflected in sales concluded by Cheffins auctioneers which increased by 13% in Q2 2018 and totaled £10.07m, the firm’s highest level since 2014. The trade also featured a strong overseas element with around 80% of stock sold through the firm’s Cambridge machinery sales going to buyers from many different countries, including Ireland, Spain, Bulgaria, Poland and Belgium.

“If you’re selling overseas to a business you do not generally need to charge VAT,” said Mr Vickery. “For EU sales, you must show the purchaser’s VAT number on your sales invoice and they pay VAT in their own country using the acquisition VAT process. You then need to log the sale on your VAT return, fill out an EC Sales List and send it in to HMRC. It is also vital that you retain a copy of the relevant freight documents for both EU or non-EU sales.”

Since laws differ in every country, it’s also important to understand the basic legal framework of the country to which you intend to export, said Amy Kerr, senior associate at solicitor Clarke Willmott.

“Considerations include investigating who you are dealing with, and checking they have legal capacity to sign any contract,” she said. “In some jurisdictions, there is a duty to inform potential buyers of any facts which would affect their decision to sign up to the contract.”

Another key concern is when and how payment is to be made and in what currency.

“Payment up front is always best, with delivery once payment has cleared,” said Ms Kerr. “Paypal is an option as this controls when payment is made.

“In addition, if you’re receiving a cash payment of €10,000 or more, you may need to register with HMRC and carry out money laundering checks.”

 

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About The Author

John Swire - Deputy editor of Agronomist and Arable Farmer as well as responsibility for the Agronomist and Arable Farmer and Farm Business websites. After 17 years milking cows on the family farm John started writing about agriculture in 1998 and has since written for a variety of publications and has developed a wide circle of contacts within the industry. When not working John is a season ticket holder at Stoke City and also of late has become a fitness freak, listing cycling, swimming and walking as his exercises of choice.