The Agriculture and Horticulture Development Board (AHDB) stands to lose £4 million a year from its budget as a result of a new ruling by HMRC that levies are outside the scope of VAT.
The ruling will come into effect from April 1 and the levy board estimates the change will wipe 9% from its £45 million budget which has already been impacted by the departure of potato and horticulture producers.
It is unclear if Quality Meat Scotland (QMS) will be subjected to the same ruling and the organisation refused to comment when contacted. QMS annual accounts show income from levies in 2020-21 was £3.9m out of a total budget of £7.6m.
AHDB says the VAT issue has been under consideration since the organisation was created in 2008. HMRC made the decision to change the body’s VAT status last October.
In a statement the beleaguered organisation it has been lobbying against the move for several months, with support from Defra, but “without any sign of a change of heart” from HMRC.
AHDB is now contacting levy payers as well as the processors and auction marts who collect the levy on their behalf so they can be ready for the change.
AHDB chair, Nicholas Saphir, said the decision was “infuriating”.
“It will rightly anger our levy payers, particularly at a time of such change and uncertainty being faced by farmers,” he said.
“Ever since AHDB was formed we have maintained that we should be entitled to recover VAT and we will continue to fight to try and achieve this.
“We also have had the support of Ministers in Defra, Scottish Government and Welsh Government in our bid for Section 33 status (a special refund scheme that allows certain organisations to recover VAT incurred on non-business activities).
“They recognise the potential impact on levy payers and I am very grateful to them.”
Mr Saphir said AHDB has re-calculated its budget for 2022-23 on the basis of not being able to recover VAT.
He added: “We have left announcing this until the last practical moment because of our ongoing discussions with HMRC and our hope that it wouldn’t reach this point.
“Our work towards Section 33 recognition – in parallel with a possible appeal through a tax tribunal – has no guarantee of success. In the meantime, HMRC has instructed us to implement its decision and we must comply or face penalties.”
Mr Saphir added that “levy payers might wish to express their feelings directly to ministers at the Treasury”.