Stock value used to be perceived by some farmers as a balancing figure to achieve ‘the right’ profit… although the tax saving achieved from reducing stock always backfired the following year. Nowadays, stock valuation is more scientific and there are several sets of rules to be considered.
The basic principle is that the stock figure should be the cost of the stock held at the balance sheet date. For growing crops, that is the sum of the planting and establishment costs (cultivation, seed, fertiliser, spray, contracting, etc) incurred up to the balance sheet date.
Furnished holiday letting profits constitute property income, but they qualify for special tax treatment:
Income from letting holiday accommodation (and from non-holiday lettings of up to 4 weeks) is normally standard rated for VAT, although a temporarily reduced 5% rate currently applies to September 2021, and a 12½% rate will apply from October 2021 to March 2022.
Over the last few years, with some farms securing Mid Tier Capital Grants for building projects and others moving more into industrial lettings, we have seen increasing expenditure on new building projects.
Capital expenditure or repairs
The income tax relief for the structural elements of new farm buildings is poor – just a Structures and Buildings Allowance, which provides relief at (from 1 April 2020) 3% per annum on a straight line basis from the date a new building comes into use.
Mediators have recognised that in farm businesses and family life, two pressure points cause problems again and again – strain between married couples over shared farmhouses and the lack of a stake in the farm business which soaks up all their energies and tensions, and lack of communication between farming fathers and sons.
Add the regular stresses and problems of running a farm business and the result can be sad and final, but it doesn’t have to be.
With some outside perspective and facilitating, the opening up of such problems in a secure, unthreatening and supported way, can be really beneficial. The family members can meet in neutral territory and listen properly to each other’s concerns, anxieties and irritations.
Farming organisations have been arranging a series of meetings and policy documents and engaging with members to discover what post Brexit should mean for the farming and the rural community. They have been making sure agriculture is on the agenda when it comes to trade negotiations. They need to hear from farmers about the risks and opportunities that are perceived and explore how these can be managed
The government are asking for input on what farming policy should look like once we are out of the EU. The industry will want to maintain some level of government support but will this be forthcoming from a more urban focused population than Europe as a whole?
While SFP is protected at least until 2019 because our exit date is unlikely to before this, for many businesses it makes up more than their profit. Farmers are going to need to consider long and hard how they will manage with lower or no payments in the not too distant future. Maybe payments will have a more environmental focus, but what hoops will need to be jumped through, at what cost to comply? Making your business stand alone without subsidy is more critical than ever. Innovative business plans, harnessing efficiencies, looking at diversifications are all on the cards; in short emphasis on making your assets provide a better return on the capital that is invested.
When the government were drawing up rules to restrict income tax relief on mortgage interest which will affect second homes, they specifically excluded furnished holiday lets. However, the new stamp duty land tax rules for additional properties intend for FHLs to be treated as other residential property.
Farmers are less likely to buy additional properties as much of the housing stock they let out is converted barns which will not change hands and therefore not be subject to higher rate SDLT. However houses bought for farm workers or to increase a residential property portfolio will suffer the charge.
A home owner who wants to buy a property for their child to live in will be caught by the additional 3% SDLT, and couples who want to jointly buy a house but one of them owns a house already will also suffer the additional charge.
The sale proceeds obtained for woodlands and forestry have been outstripping most other asset classes, with mixed woodland obtaining the highest prices, especially for smaller acreages, whilst plantation conifers have also increased in value.
Set against the uncertainty of the future of woodland in ELS/ HLS Stewardship and the New Countryside Stewardship Grant schemes there is a temptation not to put time and money into these areas of the farm.
However standing timber prices have been rising, and sales of good quality stands of conifers can produce £7,500/ acre after costs and this income will be tax free. With the increasing popularity of biomass boilers, demand for suitable timber has risen. If the sale is of woodchip rather than unprocessed logs then the income tax status will change to taxable.
Businesses can take advantage of a 100% Annual Investment Allowance currently on up to £500,000 of expenditure on most types of plant and machinery.
Making a purchase just before the end of the accounting year will typically mean that allowances will be available a year earlier, while disposing of an asset could trigger an earlier claim for relief (or an additional charge to tax). Spreading the cost of larger amounts of qualifying expenditure over two years could maximise the available relief.
Farming activities can easily slip from profit to loss due to weather, disease and a multitude of factors both within and beyond an individual's control.
If a successful diversification enterprise is established then the use of sideways loss relief, where the farm losses are set against other income including the profits from diversification, can help soften the pain. Sideways loss relief is not available for businesses using the cash basis.
If any debtors have resisted all your chasing and you need to write off the debt, do it just before the year-end rather than after in order to get the tax relief in the earlier tax year. HMRC may ask for evidence of your efforts to collect the outstanding sums before granting the relief.
Phase 1 – the commercial RHI has been in place since 2011 and has been adopted by many heat demanding farm enterprises. The details of the domestic Renewable Heat Incentive (RHI) are subject to parliamentary approval and expected to be in place by March 2014.
The domestic RHI is a UK Government financial support scheme for renewable heat, targeted at, but not limited to, off gas grid households. The domestic RHI scheme covers England, Wales and Scotland only. The scheme will cover single domestic dwellings and will be open to owner-occupiers, private landlords, Registered Providers of Social Housing, third party owners of heating systems and self-builders. It will not be open to new build properties other than self-build.
After all he reasons he is not getting any younger, the children are distinctly unenthusiastic about the prospect of coming home to help, let alone take on the farm, so why put in all the effort? He has neighbours who seem to be expanding and would be glad of his acres so he will not be without income. In due course he may sell up anyway and move to somewhere easier to manage.
He has chatted to his neighbours and they have offered the following solutions: Put stock on his farm and use his buildings on an informal basis. Maybe grow some corn and take a cut or two of silage. Get the local auctioneers to draw up a grass keep agreement. A contracting agreement Raymond wants to keep any tax bill on the sale of his farm to a minimum so ahead of any changes he goes to see his accountant.
National Insurance contributions were originally paid by the purchase of a stamp at the post office. Then they went to monthly direct debits or quarterly invoices. HMRC have changed this to bring payments in line with self-assessment.
The options now are to pay monthly, or six monthly, by direct debit. Instead of monthly payments being made in, or shortly after the month to which they relate, the monthly payments have been aligned with self-assessment payment dates.
For example, for the period 7 October 2012 to 6 April 2013 the six monthly payment will be due on 31 July 2013, or the monthly direct debits will be made between 1 February 2013 and 31 July 2013. In effect the monthly amounts are running four months in arrears.
The Judge found that H was a member of a team which consisted of employees and contractors; just because they were part of a team did not mean that they all had to have the same employment status. Looking at the relationship between H and JCB the Judge noted the following, which indicated H was NOT an employee:
Contracts could be terminated before they were due to end with little or no notice and no payment in lieu.
This accolade,repeated over all the sectors covered by the survey, (dairy, beef & sheep, poultry and arable), is held by those in the second quartile. This finding reinforces the theory that using resources efficiently is the key to profitability. The consistently successful farms are those with a keen eye for detail and an analytic approach to farm management.
As farm businesses grow managing risk becomes an increasingly important part of business strategy as the numbers involved increase. Buying or selling ahead gives a stable platform for at least some of the outputs and inputs (e.g. obtaining forward prices for all or some of the 2012 harvest wheat sales, and agreeing fertiliser prices for the same crop). Against these certainties the other variable elements can be managed to try and obtain the best margin.
Benchmarking is a useful tool to establish the difference in performance between enterprises, the results can be used to draw up a plan to improve results. Even an informal discussion of cost drivers can provide an opportunity to discuss changes in approach that may be adopted to increase profits e.g. Shifting to towards greater use of contactors with specialist.
With the change of Government, the indications are that there will be a budget within 50 days. Whilst there will undoubtedly be a number of surprises in this budget, and it is always difficult to second guess tax policy, the indications based on manifesto pledges and policy statements are that there will be some specific changes. Set out below are some areas we believe will be affected.
Substantial changes are likely affecting non business assets more than business assets. If you are considering disposing of any non business assets in the near future, it may be worth reviewing whether this disposal could be brought forward.
There are indications that in April 2011 the Income Tax personal allowances are likely to rise substantially, and at least part of the proposed National Insurance increase put forward by the previous Government, may be scrapped.
In the last years of the 20th century, scientists observed that global temperatures were rising as a consequence of humans allowing too many greenhouse gases to escape into the atmosphere. Chief amongst these gases was carbon dioxide (CO2) from the burning of fossil fuels to generate electricity.
The governments of the world held a conference and agreed that they should try and reduce the amount of CO2 that the people were producing by setting targets for electricity generation from renewable sources. Many people came up with ideas as to how this could be done, some suggested wind, others waves and others still using flowing water, but one particularly popular idea was the use of photo voltaic (PV) cells.
PV or solar electric cells produce electricity from sunlight and with modern technology work surprisingly well, even in the UK, but particularly in southerly coastal counties such as Devon. Initially, to encourage the general public to help achieve the generation target by fitting solar PV panels to their homes, the government offered grants towards the cost of installing what is still relatively expensive technology.
BPR is available on assets used in a trade and for farmers it can often pick up the excess over agricultural value for land and buildings that have hope value due to development potential. There are a number of requirements that must be fulfilled to obtain the relief at either 50% or 100%. Please contact us for more details.
In this case there was a transfer of farmland with potential for residential development to a trust prior to death and HMRC argued that the hope value did not fall under the scope of business property relief, because it consisted of a single asset rather than a whole business or an identifiable part of a business. It was decided in the High Court that relief was due on a single asset provided that it would have qualified for relief in the context of the whole business at the point of transfer. However HMRC is applying for leave to appeal.