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

by | Feb 15, 2021 | Tax, VAT

or those who love horse racing, the prospect of owning a racehorse can be a very exciting idea. Horse racing is not only a passion project, but there can be a lot of money to be made from a successful horse.

There are five types of horse owners:

  • The first is a sole owner, this is when you wish to own or lease a horse outright.
  • There is company ownership, where companies and studs own or lease a horse under the name of a company or business. companies can own horses outright or within a Partnership or Syndicate.
  • The third type of horse ownership is Partnership. This is for two or more people who want to share the ownership or lease of one or more horses, and all members of the Partnership are registered owners. Partnerships allow owners to define the percentage of each horse they own and split the costs and winnings in accordance with the ownership share.
  • The fourth type of ownership is a Syndicate. This is for people who want to share the ownership or lease of one or more horses, but a Syndicate is managed and administered by the Syndicators. Only the Syndicators must register as a Sole/Company owner. It isn’t necessary for members of the Syndicate to register as owners.
  • The fifth and final way to own a horse is through a Racing Club. This is for people who want to pay a subscription to experience racehorse ownership. A Racing Club is managed and administered by the Club manager(s) and it is the Club itself, as opposed to its members, that owns or leases the horse(s). Members pay a fee to be part of club and to enjoy some of the benefits of racehorse ownership.

To become a racehorse owner, the horse must be registered with the British Horseracing Authority (BHA), registration is completed using an online application form. A BHA direct debit arrangement must be set up on registration, and this fee is currently £981. There are many considerations when purchasing a racehorse, these include naming the horse, picking the racing colours, sorting the authority to act, and getting a written agreement with a trainer.

VAT registration is essential when wanting to make your horse financially efficient. The owner must be registered as an owner at Weatherby’s in order to qualify and the following criteria must also be met:

  • You own a horse or horses covered by a sponsorship agreement registered at Weatherby’s
  • You own a horse or horses covered by a trainer’s sponsorship agreement registered at Weatherby’s
  • You can show you have received or will continue to receive, business income (e.g. appearance money or sponsored number cloths from horse racing activities).

The VAT registration process is relatively simple. Horse owners need to obtain a copy of the D1 form (for individual owners) or D2 forms (for Partnerships) from Weatherby’s. The completed form must be checked and certified by Weatherby’s, then the certified form is sent with a VAT registration form to HMRC.

For sponsorships, template sponsorship agreements are available from the BHA. You can treat racehorses as part of VAT registration if you do not have a sponsorship agreement, but you must show that you are actively seeking sponsorship. Sponsorship payment is dependent on the horse winning to meet the scheme’s criteria.

If a company is already registered for VAT for an unconnected business activity (i.e. not bloodstock) then HMRC will normally only accept racehorse forms that are part of your existing business, if you can evidence that the horse was bought for business purposes. The VAT scheme cannot be used if you have less than a 50% share in the horse.

With input tax recovery, typically VAT charged on the purchase, training and upkeep of a racehorse are recoverable.

Similar to normal VAT registration, you can recover input tax on expenses incurred before the date of registration (up to 4 years before the registration date) on goods that are on hand at the time of registration and are to be used for the purposes of business.

Input tax, goods or services used for business entertainment, including free hospitality provided to business guests cannot be recovered. Weatherby’s provide a breakdown of certain expenditure on jockeys’ services and miscellaneous fees. They issue monthly statements and transaction details showing VAT on prize and appearance money.

With output tax, if registered under the scheme, output tax must be accounted for on sponsorship income, prize money and appearance money received. If a racehorse is sold, the owner must charge and account for VAT on the full selling price. Different rules apply if there was no VAT charged on the original purchase or if a horse is given away.

If these points are taken into account when purchasing and owning racehorse they can be more tax efficient. We support racehorse owners, whatever the ownership structure, with VAT, accounting and other tax advice.

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