VAT - are trainers being financially squeezed? | Trainer Magazine | European Trainer Article Index

Dec 17

Dec 17 VAT - are trainers being financially squeezed?

It is more likely the survival instinct, coupled largely with a lack of interest in the business end of things, that causes most trainers to say they have no problems that they are aware of with VAT. However, the European Trainers’ Federation (ETF) did recently raise concerns about the situation in Europe, with particular regard to France, when stating, “The yearling sales increase, but the situation of trainers is getting worse. In France, the VAT was 7% until the end of 2012 and since January 1st has been 19.6%. The VAT will become 20% as of 1st January. There is enough money at France Galop to keep the same racing allowances for the moment. “A big change for trainers happened in April in France: trainers receive 14% of the prize money (10% for the trainer and 4% for the yard). Before April the VAT was included in the 14%, so the trainers had to remove the VAT from the amount received. From 1st January 2014 trainers will receive 14% plus the VAT.” In Ireland, VAT on training fees remains unaltered at 2.3% since it is calculated at 10% of the Standard Rate, and an increase in VAT on purchase price is hardly likely to deter potential owners. However, in France the VAT rate increase on training fees is definitely posing a serious threat. In all cases VAT on prize money earned is set at the Standard Rate and applicable to VAT-registered owners. The rise of the VAT rate in Ireland for the horse industry from 4.8% to 9%, with effect from 1st May 2014, will effectively double the VAT bills of dealers. Up until now horses have been horses, an agricultural commodity, but the Department of Finance has now recognised that racehorses are a breed apart. Whilst the 4.8% will still apply to those horses intended for use in the preparation of foodstuffs or in agricultural production, 9% will be applicable to horses not intended for use in the preparation of foodstuffs or in agricultural production, and will also apply to the hire of horses. As all countries provide agricultural services with a Reduced Rate of VAT, which is significantly lower than the Standard Rate, it is of great importance to the industry that it retains its agricultural status. An increase to 9% in Ireland is still better than a sharp rise to the Standard Rate of 23%, as exemplified in France. In Britain the Reduced Rate is 0%; in Germany 7%; and in France 5.5%. While racing could, and often should, be viewed as a business, 90% of training fees are recognised as non-profit and on the coalface any change of VAT status could be potentially disastrous. The EU provides a bookshop of free to BUSINESS The first day of November saw some changes announced in Irish VAT regulations, and how they will impact the thoroughbred industry is a major talking point in Ireland. However, similar changes have already been implemented elsewhere in Europe with no real notable effect other than initial alarm. Perhaps we are guilty of complacency within the racing industry. Or perhaps we are simply survivors, who see an obstacle, complain briefly, then up and over, to continue the race. WORDS: LISSA OLIVER PHOTOS: SHUTTERSTOCK, CAROLINE NORRIS compulsory and is left open to negotiation, any opportunity to find a loophole in the proposed increase in the Irish rate has been denied by the Department of Finance, which announced, “Following the introduction of the new legislation, the Revenue Commissioners will produce a leaflet which will provide clarification on how the new arrangements will apply particularly in respect of horses...” It has to be wondered why this leaflet cannot be produced prior to legislation. Despite the fact that thoroughbred horse breeders sell their stock at varying ages and as mares carrying foals, there are no plans to differentiate VAT rates for any of these distinct markets, and the Revenue Commissioners insist the 9% rate will apply, with the proviso, “If necessary, [we] will address this point in [our] leaflet.” The thoroughbred industry, particularly the representative bodies of breeders, has always been very good at drawing up battle plans, but cannot do so without a clear sight of the enemy. It may be initially obvious that racehorses are neither foodstuff nor agricultural, but not every thoroughbred foal produced will make it to a racecourse and broodmares are nothing if not agricultural, surely? Such blurred lines are there to be pounced on and fought over, and it is likely that those same blurred lines are currently causing the Revenue Commissioners a severe headache as they attempt to iron them out – after the legislation is enforced. Neither has a distinction been made between those buying a horse to trade and end-users, even though racehorse owners are usually private individuals and not registered for VAT. VAT-registered farmers will incur the 9% rate when selling horses not intended for use in food or in agricultural production. The Revenue Commissioners add that, “If the supply is made by a flat-rate farmer, he/she will charge the bloodstock agent (if registered for VAT) the flat-rate addition, which will be download books and leaflets, which includes EU VAT Rates, listed in the table below. These can be found at https://bookshop.europa.eu/ en/home/. At one time, a large number of rates below the Standard VAT rate were applied in various Member States, but the Single Market legislation reduced the number of lower rates allowable to a maximum of two. There remains, however, considerable variation in the transactions to which these reduced rates apply, and Member States can pick and choose their own goods and services. Good news for “There was a lot of confusion about the rules, but France Galop issued statements to confirm the rules. Most of the administrative bodies such as the BHB provide clear statements and booklets on the subject” Matthew Ayton, TMF the racing industry is that under legislation adopted in 1999, Member States are able to apply reduced rates to certain labour-intensive services, for which racing can be included. In addition, Belgium and Ireland have special arrangements allowing them to charge a “parking” rate at a minimum of 12% to certain transactions, applied in particular to jockeys in Ireland. While the application of these rates is not 5% with effect from 1st January 2014. A supply by a flat-rate farmer to a private individual or to another flat-rate farmer is not subject to VAT.” The VAT rate increase should not impact sales of Irish thoroughbred horses to the UK or other EU States as they are generally registered for VAT, and intra-Community supplies of goods to taxable persons are zero-rated and accounted for by the registered person in the other Member States. If the rules on VAT in Ireland are changing, how do they compare to those elsewhere? There is a free-to-use one-stop shop for VAT and tax queries for all European countries and worldwide, in the form of TMF VAT Services, and enquiries are welcomed at www.tmf-vat.com. Matthew Ayton of TMF admits that the racing industry is a funny one, being on the cusp of agricultural but quite clearly a business. “There was a lot of confusion about the rules,” he says, “particularly in France, but France Galop issued statements to confirm the rules. Most of the administrative bodies such as the BHB provide clear statements and booklets on the subject.” One of the most frequent questions answered by TMF regards VAT on prize money. “In France it is settled by the offerer, i.e. the sponsor, and not the winner.” In Britain, the Owners VAT Scheme is in place to allow owners to claim back their racing-related VAT, provided they have a sponsorship agreement in place to the minimum value of £300 per horse; or £750 per horse if running in Class 1 races; or £100 per horse per year where the agreement is for a group of ten or more horses. Individual trainers and the Racehorse Owners Association (ROA) may be able to assist in obtaining sponsorship. For those in a racing partnership or joint ownership, a joint VAT number can be registered with partners. With sponsorship in place, VAT can be claimed back on such things as the original purchase price of the horse, training fees, veterinary fees, blacksmith’s fees, telephone bills, and travel and accommodation costs incurred by watching the horse race or train, as well as many other incidentals. Weatherbys VAT Services can advise on specific details. Non-UK residents are also eligible under the Scheme if they use an agent based in the UK or register directly with HM Revenue & Customs in Aberdeen, Scotland, which specialises with VAT registered traders based overseas. The registration process takes just over a month and subsequent repayments are normally issued within two weeks from the submission of a VAT return, depending on the size of the claim. Once registered for VAT in Britain, any sale of a horse will be liable for VAT, whether at auction or privately. The sale invoice must detail the VAT charged, and all VAT on sales must be declared to HM Revenue & Customs accordingly. Be warned that this also applies to horses given away, and the VAT value is calculated on their open market value at the time of their disposal. It is possible that the VAT will even be calculated on the last known value of the horse, which could well be the price originally paid for it. Finally, while death and taxes are the two unavoidable factors of life, a great many other problems could easily be avoided with a Training Agreement. The European Trainers Federation does provide a template, but as Michael Grassick, Chief Executive of the Irish Racehorse Trainers Association, points out, the signing of a Training Agreement is not compulsory and therefore renders it next to worthless at present. “We have been asking for years for it to be made compulsory,” says Grassick, but only a small handful of trainers have managed to gain an equally small handful of owners’ signatures providing their trainer with the authority to act on their behalf. An owner will not bother to sign an Agreement when he or she can take their horses to another nearby trainer with no such Agreement in place. This seems remarkable when a Training Agreement is as much in the interests of an owner as it is the trainer. As Linda Corn of Weatherbys explains, “When taking on a new owner in a yard every trainer should have an Agreement Form, and it is recommended they include within that agreement an item on how the trainer and yard percentages are to be paid.” With or without an Agreement, those percentages must be paid, and an Agreement simply spares an owner from embarrassing financial surprises and spares the trainer an unnecessary battle in retrieving those payments. A Weatherbys account also provides a Foreign Trainer and Stable Mandate for clients, giving Weatherbys authorisation to pay the trainer and yard direct from prize money. “We have a Withholding Tax Exempt Form, which can be filled in beforehand,” says Linda Corn. “We would recommend all owners to fill in this form prior to running their horse abroad. In Italy there is a 4% tax, which is non- returnable. In Germany it is up to 26% in some cases.” Clearly this is not a subject for the non- expert and it is strongly advisable to sign up for any assistance the likes of Weatherbys, the BHB, and France Galop can offer, which is readily accessible.

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THIS ARTICLE FIRST APPEARED IN - EUROPEAN TRAINER - ISSUE 44

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