Are planning rules holding back farm diversification?

As the economy starts to recover to pre-2008 levels there is a more upbeat mindset amongst many business owners. We are starting to see farming clients weigh up the attractions of diversification into tourism again. This is partly fuelled by improved access to funding and a relaxation of planning rules.

That said I have seen several projects which seem set to cost more than anticipated due to restrictions in their planning permission.

For many farmers, converting redundant barns to provide self-catering holiday accommodation makes sense. It preserves otherwise useless buildings and increases capital values. Converting some properties however is not always a cheap undertaking. One benefit of converting old business premises is the reduction in the VAT rate to 5% from the normal 20% rate.

These savings often make the difference between a cost-effective build that can soon generate surplus cash, and those that take longer to repay the capital costs, sometimes putting the whole project in doubt.

What isn’t normally appreciated by farmers diversifying is that restrictions placed in the planning consent can remove the entitlement to the discounted 5% VAT rate.

In order to qualify for VAT at 5%, a building must be available for separate disposal, i.e. If it is tied to any other property such that it can’t be sold on its own, whether that be another dwelling or simply land, it cannot benefit from the reduced VAT rate.

Whilst planning permission seems to be more readily handed out for some of these projects, many have restrictions on disposal included in the planning consent. Given the costs that these can impose on those converting properties, anyone applying for planning permission should try and avoid restrictions being imposed.

For more information contact rob@doddaccountants.co.uk or follow him on twitter @Rob__Hitch

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