Q: I have a farm with 12 stables and nine of my own horses. I want to use the remaining three boxes for liveries and have been told that, even though they will all be friends and have their own insurance, I need to take out business insurance. Also, should their horses injure any of my staff, I believe I would be responsible on my insurance.
So, I will declare myself a business to HM Revenue & Customs (HMRC), and will probably make a loss as there’s not much profit to be made on three liveries. But my accountant informs me that if, after two years, I continue to make a loss, HMRC will close me down because then it is a hobby not a business.
Is there any way round this catch- 22 situation?
SH, East Yorkshire
According to Angie Bailey, equine account manager at the Ryan Insurance Group, the matter of staff is key.
“Presumably you already have your staff covered under your farm policy for the activities that they carry out now,” said Angie. “You could ask your farm insurers to extend your business description to include a livery yard, and then your staff would be covered for the new activity.
“By law, you must have employer’s liability cover,” Angie said. “This would also mean the public liability section would be extended to cover your friends, or other members of the public coming into the yard. Some farm insurers will not extend cover, therefore you could have a standalone employer’s and public liability policy with a specialist insurer.”
According to HMRC, the organisation does not close down loss-making businesses. HMRC cannot advise on your individual case here but suggests you contact your local tax office, where you can receive specialist advice. Further information can be found on its website.
Colin Davison, tax consultant at Cranleys Chartered Accountants, added that your accountant is partly correct.
“If you continue to make a loss, it may be deemed that you are just operating as a hobby,” he said. “This issue is actually commonplace. As accountants, we aim to ensure that for some years at least, the business in question has a profit, and will fall outside the ‘hobby’ issue, but it is not correct that the business will be closed down.
“If it were to be seen as a hobby, the activity would not stop — it would merely need to complete a set of accounts to state the business will stop trading. The tax inspector will not be visiting your liveries to put a lock on their doors!”
• Cranleys, tel: 01256 830000 www.cranleys.co.uk
• HMRC www.hmrc.gov.uk
• Ryan Insurance Group, tel: 08445 739422 www.ryan-group.co.uk
This Q&A was first published in Horse & Hound (6 November, ’08)