Getting your head around the various tax consequences involving horses is a bit of a hurdle — excuse the pun. The tax rules are different to any other farming sector, making it a specialist area within general farming taxation.
This article looks at the various income tax and VAT consequences involving horses.
The starting point to consider is whether there is any business activity — or are you simply keeping horses as a hobby?
In general, if you keep horses only as a hobby, then the costs associated with the purchase, feed and keep of horses are not tax deductible, and neither is the income from the sale of the horses treated as taxable income.
As no business is being carried on, there are no VAT implications. In other words, it would not be possible to reclaim VAT on the purchase of the horse, or of any of the associated costs of keeping the horse, neither would you be required to pay VAT on the sale of the horse.
There is a whole series of previous court cases which have set down a number of principles to help decide whether an individual is carrying on a business or not. But, in general, it’s normally easy enough to figure out whether your activity is a business or not.
If you are carrying on a business of buying and selling or breeding or training horses, or providing pony trekking or horse riding lessons, then there are various different tax consequences of each of these businesses, and the following is a guide as to the tax treatments applicable.
Buying, selling and breeding horses
Generally, a person who carries on such an activity as a business is treated as carrying on a trade no different to any other form of farming, the profits are taxable as normal trading income. All sales are treated as income and all costs associated with the purchase, rearing, keep and sales should be tax deductible.
From a VAT point of view, a person selling horses can choose whether he or she wishes to register for VAT. VAT would be reclaimable at the various rates that apply on the costs involved, and would be payable on the sale at 4.8%. If you choose to register it would bring your other farming activities also within the VAT net.
An unregistered farmer who provides stallion stud services of greater than €35,000 per annum would have to register and charge VAT at 23% on the stud fees, but there is an ability to have a lesser VAT rate apply by changing the method in which stud fees are charged.
Horses in training
A horse in training is a different animal for tax purposes. Revenue regard the income from the sale of such a horse, or from the winnings of such a horse, as non-taxable. As a result, Revenue don’t allow an individual to claim a tax deduction for the costs incurred while a horse is in training.
If that horse was home-bred, Revenue would consider that the tax deductibility of the costs of rearing that horse are cancelled out, once that horse goes into training.
A horse could be considered as being in training if it is registered with one of the sport horse organisations, and is actively participating or is expected to be participating in competitions with those agencies.
A farmer who trains other peoples’ horses may be required to register for VAT. Revenue regard 10% of a trainer’s turnover as subject to VAT. Therefore, assuming the trainer has no other VAT-liable income, he or she would be required to register for VAT if training income exceeds €350,000 from training fees. If training income is over this limit, Revenue will expect the trainer to apply VAT at 23% on one tenth of the turnover.
Riding and pony trekking
On the horse riding and pony trekking side of things, Revenue will look for 9% VAT on these services, where VAT-liable turnover is again over €35,000.
In summary, the income tax treatment around horses and in particular the requirement to register for VAT is complicated, because a tax advisor must take into account what other activities are being carried on.
As always, each individual’s circumstances should be looked at for the best advice, your questions on this and other farming tax issues are welcome.
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