You may find this case reassuring if you work in farming or run a business where VAT rules can change quietly in the background. Mr and Mrs Julian run a long‑established family farming partnership on St Martin’s in the Isles of Scilly. They grow flowers for postal gift orders, run two holiday cottages and keep a small herd of cattle.
For more than 25 years they used the Agricultural Flat Rate Scheme (AFRS) – a simplified VAT‑related scheme that allows farmers to avoid full VAT registration and instead charge a fixed percentage addition on certain sales. For decades, nothing significant changed in how the scheme worked, so there was no obvious reason to expect anything new.
From 2021, however, the rules changed in a way that directly affected them. Their turnover had grown enough that they no longer qualified for the AFRS and should have registered for VAT. The problem was that these changes were barely publicised and very difficult for ordinary farmers or generalist accountants to spot. Their accountant only discovered the change by chance in April 2023. As soon as she did, the Julians acted immediately: they applied for VAT registration, disclosed everything to HMRC and paid over £500,000 of VAT, even clearing their Time to Pay agreement early. The tribunal said their behaviour was responsible and accepted that they had a reasonable excuse for not knowing earlier. The £43,438 penalty charged by HMRC due to registering for VAT late was cancelled.
What changed in the AFRS rules?
The new VAT‑related exit threshold
From 2021, you must leave the AFRS if your taxable farming turnover exceeds £230,000. Because AFRS is a VAT alternative, exceeding this limit means you can no longer stay out of normal VAT registration. The threshold is checked in two ways:
• once a year on your AFRS certificate anniversary, and
• monthly on a rolling 30‑day basis.
This threshold didn’t exist before, so long‑standing AFRS users had no reason to be watching for it.
The problem in this case wasn’t that the rule was complicated – it was that the information was extremely hard for non‑specialists to find. It wasn’t highlighted to farmers, wasn’t clearly announced, and was effectively hidden within technical documents. The tribunal decided it was entirely reasonable that the Julians and their accountant didn’t know the rules had changed.
Will HMRC be happy about this?
Probably not. HMRC argued that taxpayers and accountants should have known about the change. The tribunal strongly disagreed, saying the update was so poorly publicised that it was reasonable not to know. This decision makes it harder for HMRC to justify penalties where rule changes are unclear or hidden.
That said, this isn’t a free pass. You still need to act responsibly, keep an eye on your figures where you reasonably can, and take quick action once you find out something needs fixing. The Julians won because they did exactly that.
How Xeinadin can help you?
Monitoring your turnover – We can help you keep track of your turnover throughout the year so you don’t accidentally cross the £230,000 AFRS limit.
Keeping you informed – We stay on top of changes to HMRC guidance and explain them in simple, practical terms so you always know how new rules affect you.
Fixing issues quickly – If something has been missed, we can help you get registered, disclose the problem and set up payment arrangements with HMRC straight away. Swift action made a big difference in this case.
