Racehorses and how understanding the VAT treatment can make them more tax efficient

by | Feb 15, 2021 | Tax, VAT

For those who love horse racing, the prospect of owning a racehorse can be an exciting thought. As well as being a passion project and great fun, owning a successful racehorse can also be financially rewarding. Sometimes!

You can own a horse personally as a sole owner, your company can own the asset, or ownership can be shared with others through a partnership, syndicate or racing club. The owner should register its details online with the British Horseracing Authority (BHA), the body responsible for the governance, administration and regulation of horseracing in Britain.  Ownership registrations, and other aspects of British racing, are administered by Weatherbys on behalf of BHA.

Owning a racehorse is of course an expensive activity. As well as the actual costs, VAT is charged on the purchase, training and upkeep of a racehorse and on other costs involved. Although VAT can be a significant element of the total costs incurred, subject to certain conditions, it is recoverable through one of the two registration routes outlined below. VAT registration does however carry responsibilities as well as benefits.

VAT registration scheme for racehorse owners

The scheme requires racehorse owners to generate business income from the horse. Registered owners that are sole proprietors, partnerships or limited companies can apply for VAT registration under this scheme if they either:

  • own a horse or horses covered by a sponsorship agreement registered at Weatherbys
  • own a horse or horses covered by a trainer’s sponsorship agreement registered at Weatherbys
  • can show they has received and will continue to receive business income from their horse racing activities (e.g. appearance money or sponsored number cloths)

If you own less than a 50% share in a racehorse you can only register as a partnership with the other part share owners.

Once VAT registered –

  • VAT that you’re charged on the purchase, training and upkeep of a racehorse and any overhead expenses can be recovered subject to the normal rules (i.e. VAT incurred on business entertainment is not recoverable, etc).
  • You must account for VAT on any sponsorship income, prize money and appearance money that you receive.
  • You must normally charge and account for VAT on the full selling price of a horse or part share in a horse, subject to one or two exceptions.
  • You must complete and submit quarterly VAT returns and may be liable to penalties if they are late and / or inaccurate.

Existing business VAT registration

If you / your company purchase a racehorse and are already registered for VAT under the normal VAT registration rules for business activities that are unconnected with the ownership of racehorses, HMRC will normally accept that the racehorse forms part of your existing business if you can show that the horse was bought for business purposes, for example, it advertises your business / company / products. In this case, VAT on related costs is recoverable and VAT must be accounted for on any prize money and other income, etc. HMRC may look critically at a company that owns a racehorse and seeks to recover VAT incurred on costs, with concerns that it masks a personal interest of the owners and in reality, is a non-business activity.  Therefore, taking advantage of the advertising opportunities on the jockey’s colours, and / or racing the horse in the company’s name and / or having a sponsorship agreement etc can help to demonstrate business use of the horse.

The above is a brief overview.  If you are thinking of purchasing a horse and would like to discuss the VAT aspects further, please get in touch with our VAT Director, Dahlia Patsalides.

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