Farming & Agriculture
Green & Co runs a specialist farm and agricultural division led by director Nick Park. An expert in the field of farm accountancy, Nick is also a farmer himself. Because of this, he is perfectly positioned to advise and assist you in and your agricultural business.
Our mission is to make your farm as profitable as possible, enabling you to pass on a successful and sustainable business to a new generation who will continue to serve your local community for years to come.
Require specialist financial advice for your farming needs?
Farm profits can fluctuate wildly from year to year due to many uncontrollable factors, from the weather to world commodity markets. This means that in one year you may have a very high tax bill, and in another nothing to pay. In order to remedy the fluctuations, you can make an averaging election and average your profits over either a two or five year period. Used correctly, these elections can substantially reduce your tax bill and improve cashflow.
The two year averaging election has been in place for some years. This is where profits from two consecutive years can be averaged if the profit from one year is less than 75% of the profit of the other year. The adjustment results in each year’s taxable profit being half the total of both years.
The five-year averaging rule was introduced in April 2016, so you now have the added option of averaging profits over five consecutive years. A ‘volatility condition’ needs to be met in order to claim the five year relief. The relief is available to sole traders and partnerships, but not limited companies.
If you have a production herd you may elect for the ‘herd basis’. Common examples of production herds are dairy cows, suckler cows, sows or a flock of breeding ewes or breeding fish. Herd basis animals are excluded from trading stock and are treated like a capital asset. The benefits of herd basis mean the cost of maintaining the herd is an allowable expense and any profit on the eventual disposal of the herd is tax free.
You may be a sole trader, partnership or limited company, but there are statutory time limits for the election and it is irrevocable. Only mature animals can be on the herd basis. This applies to female animals that have had their first offspring and male animals when they are first used for breeding.
Herd basis election decisions must be planned carefully as there can be significant tax implications.
We all know that farming has been going through very tough times in recent years, and many farmers are faced with the prospect of making losses year after year. Unfortunately, HMRC does not make the farmer’s plight any easier. There are strict rules which apply to farming losses which seek to treat the enterprise as a hobby as opposed to a commercial business. These rules do not apply to other businesses.
It is extremely important that farming businesses do not fall foul of these rules and lose the ability to offset farm losses against any other income received in order to reduce any tax payable, or indeed reclaim tax deducted on investment income.
Farmhouse VAT Planning
It is accepted by HMRC that farmhouses are an integral part of the farm business itself. You need to be available at all times to attend to livestock and safeguard farm buildings and equipment and a farmhouse ensures this. However, as the farmhouse provides domestic accommodation for you and your family, there has to be a proportion for private use.
Your business can normally claim 70% of the VAT incurred on work if it passes various criteria. This includes ensuring the building is a typical working farmhouse,
the business is a full-time farming activity and the work done constitutes repair and maintenance of the farmhouse.
However, the amount of VAT a business can claim is unlikely to exceed to 40% in certain situations. For example, if farming is only your part-time activity and the farmhouse is primarily the family home, your claim may be limited. This also applies if the work done is an extension or alteration of the farmhouse.
Rental VAT Planning
Farmers often let out property or storage facilities and need to ensure that VAT is charged and reclaimed correctly. If you are VAT registered and rent out an outbuilding for use as storage, this is now a standard supply and you will have to charge VAT. This isn’t a problem if you are renting to a VAT registered person, and it does mean that you can reclaim VAT on all repairs and maintenance.
If you let a cottage or converted barn for residential use, you are making an exempt supply so you do not charge VAT. This usually means you can’t reclaim any VAT on expenses relating to the rented property. However, as farmers, you also make standard-rated or zero-rated supplies, such as livestock sales and crop sales, so you are considered partly exempt. This means that if you pass one of the 3 de minimis tests set by HMRC you would be able to reclaim this VAT.
To run the tests, you will need to ensure that you keep a separate figure for the rental income and separate figures to show the VAT on expenses relating to the rented property; VAT on expenses relating to your standard supplies; and also VAT on expenses relating to a mix of both supplies. Although this can become quite complicated, it is worthwhile doing the tests, otherwise you cannot claim any of the VAT! This will be even more critical if you intend to do repairs on the property, as you could potentially recover up to £7,500 VAT in one year.
There has been much publicity about the current housing crisis, and the Government has recognised the need to encourage new housing development. In England, ‘permitted development rights’ have been extended to allow more development of farm buildings for residential use. This is a positive move for house buyers, the rural economy and you as a land owner.
Additonal services we can help with
Capital Allowances ⟶
Entrepreneur Relief ⟶
Capital Gains Tax ⟶
Inheritance Tax Review & Estate Planning ⟶
Require specialist financial advice for your farming needs?
Need some extra help running your farming business? We have developed a selection of free online tools to help our clients get the financial advice they need. We pride ourselves on supporting our clients whenever and wherever we can and aim to constantly improve our service offerings.
Our farming expertise could benefit your family and your business. Contact us to get professional and experienced advice from our team.
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