2018-08-08 

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Beware Tax and Legal Pitfalls when Trading Farm Machinery

Farmers are making the most of buoyant second-hand trade in machinery, with strong demand throughout Europe – but they need to be careful of VAT and legal pitfalls.

According to farm accountant Old Mill, selling surplus machinery is a good way to free up cash, but it 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,” explains Andrew Vickery, 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.”

Cheffins Machinery Sale

Cheffins Machinery Sale

Sales of second hand machinery through Cheffins auctioneers increased by 13% in Q2 2018, to £10.07m; its highest level since 2014. However, the volume traded only increased by 3%, reflecting the higher prices driven by favourable exchange rates for overseas buyers, stronger commodity prices and a lack of stock.

Around 80% of stock sold at the firm’s Cambridge machinery sales went overseas, with buyers from countries including Ireland, Spain, Bulgaria, Poland and Belgium. So what’s the difference between selling within the UK and further afield?

“If you’re selling overseas to a business you do not generally need to charge VAT,” explains 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 important to understand the basic legal framework of the country to which you intend to export, says Amy Kerr, senior associate at solicitor Clarke Willmott. “Initial research and planning ahead are essential.”

Considerations include investigating who you are dealing with, and checking they have legal capacity to sign any contract. “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,” explains Ms Kerr.

The contract itself should include an accurate description of the machinery – otherwise it may be deemed to be of satisfactory quality. Does the price include any sales taxes, customs duties, freight and insurance – and can these be varied later to reflect fluctuating duties or exchange rates?

A 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,” explains Ms Kerr. “Paypal is an option as this controls when payment is made.”

If interest is to be charged for late payment, this should be specified. “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.”

Other issues include damage in transit or late delivery – can the purchaser reject the goods? “You should also specify which courts are to have jurisdiction in the case of a claim.”

Many of these considerations also come into play when trading within the UK, warns Mr Vickery. “There is strong trade in second hand machinery within the UK, as farmers join forces to buy new equipment while others look for cheaper options. While there will always be tax considerations when freeing up capital, it’s important to make the right commercial decisions for your business.”

Old Mill

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