Dozens of farming families across Pembrokeshire, who supplement their farm incomes by running bed and breakfast businesses may be landed with big demands for unpaid tax.

Experts are warning that HM Revenue and Customs (HMRC) is increasingly targeting this stream of income, if it is treated separately from the farm business.

Farm diversifications, including bed and breakfast and cottage lets, are being investigated. The liability arises if a bed and breakfast enterprise and farm are not run and sufficiently accounted for separately.

If HMRC adds the two turnovers, they are likely to top the £67,000 VAT registration threshold, leaving the B&B income subject to the 17.5% tax.

While some accommodation businesses are set up — financially and organisationally — in a way that allows them to demonstrate ‘separateness’ from the farm, many others will struggle to do this.

There is concern about the financial implications for some businesses but farmers who have always run their tax affairs according to the rules say it is time for parity.

Glyn Jones, who runs a bed and breakfast business at Lochmeyler Farmhouse, Llandeloy, pays around £40,000 in tax from this business because he has always run it separately from the farm.

He says it is a big financial burden for the business to bear while his charges are ‘capped’ by the rates set by businesses that don’t pay the full amount.

“We have got to keep our prices in line with those that don’t pay VAT otherwise we wouldn’t get any customers,” says Mr Jones.

Critics of HMRC have dubbed the suggestion that VAT may also be reclaimed from previous years as ‘heavy-handed’ at a time when many small businesses are struggling.