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Publication of the draft Finance Bill following the Budget has clarified the position on the charging of Stamp Duty Land Tax on farmhouses.

Where a farmhouse is bought as part of a farm it will be classed for SDLT purposes as a mixed asset, attracting SDLT at 4% on purchases worth more than £500,000.

Only where a farmhouse is bought separately from the main land will it risk being classified as residential property, bringing a liability to SDLT at 5% for those valued at £1m-plus, or 7% for those worth more than £2m.

However, these rates apply only where the buyer is an individual or a normal farming partnership (ie one with no corporate partner). Where a corporate partner is involved or where the buyer is a company, an SDLT rate of 15% can apply on houses worth more than £2m.

More farm holiday businesses could be eligible for Business Property Relief following a tax tribunal decision.

HMRC usually argues that holiday lets are an investment rather than a business so should not qualify for relief from inheritance tax but the executors of a woman who owned a holiday property before her death in 2006 have won a tribunal appeal allowing BPR to be claimed.

HMRC had denied BPR on a holiday cottage forming part of Mrs Pawson’s estate, but an appeal at a First Tier Tribunal found that providing a cleaner, laundry, telephone and television, garden maintenance and switching on the heating before arrival was above and beyond normal holiday let services.

Catherine Vickery, tax planning manager at accountant Old Mill, said HMRC was likely to appeal the finding. “It is not a binding decision on HMRC, so the guidance is unlikely to change,” she said.

“To be on the safe side, you still need to ensure you’re making a profit and providing a high level of services, like a swimming pool, chef, or on-site shop, for example. But in the long run, there is no better solution than forward planning. So take steps to make over the property to the next generation in plenty of time, so that it falls outside your estate for Inheritance Tax purposes.”

Sole traders and rural businesses have been urged to get their online tax returns completed in plenty of time, following a clampdown by HM Revenue & Customs.

Online Self Assessment forms must be completed before 31 January 2012, but rural accountant Old Mill said that 1.5m taxpayers were fined for late filing in 2011, 8% more than 2010.

“With a standard late filing penalty of £100, the sum of 1.5m penalties represents a minimum of £150m income for the Exchequer,” Old Mill partner Mike Butler said.

HMRC has altered the penalty system in recent years and taxpayers will be charged a penalty for late submission even if no liability is due, he warned.

“I would urge everyone who has failed to meet the paper return deadline of 31 October to file online before 31 January, even if they are not expecting a liability to be due.”

Changes to VAT and business investment tax relief could do much to stimulate the rural economy, says Mike Harrison of accountant Saffery Champness.
 
On VAT, the Chancellor could use his autumn statement on 29 November to introduce a reduced rate for property works to boost maintenance and extension work in the building trade, he says. 

Tourism could also be encouraged through a reduced rate of VAT, encouraging more holidays at home and in the countryside to aid the rural economy.

Although larger companies will benefit from lower corporation tax rates from April 2012, there was nothing to help partnerships or sole traders cope with the reduction in capital allowances next spring, so the Chancellor could offer these businesses enhanced allowances to stimulate investment, suggests Mr Harrison.

Diversified businesses could also be helped if the tax rules were changed to allow losses in one business to be offset against the profits of another.

Rural businesses submitting paper copies of their self-assessment tax returns have just a few days left to do so.

Paper tax returns must reach HM Revenue & Customs by midnight on 31 October, or a heavy penalty could be imposed, Richard Cartwright from Saffery Champness warned.

“Even if you are one day late there is a fixed penalty of £100 which applies even if you have no tax to pay or have paid the tax you owe. If your tax return is three months late, you'll have to pay a penalty for each additional day it is late. If it is six months late, you'll have to pay a further penalty and another final penalty if it is 12 months late.”

In a few cases the deadline could be delayed, but only if this has been confirmed by HMRC. If the paper tax return cannot be returned on time, there is the option of filing it in online by 31 January 2012.

Look out for FWi's new tax tips where farm accountancy specialists from Old Mill Group offer advice on choosing the correct business structure.

The tax pitfalls and opportunities of the renewable energy sector also come under scrutiny. In the race to get a project up and running, tax can sometimes be an afterthought but as so often, a little planning could yield a far better financial outcome.
 
There is food for thought for tenants too, including a look at the tax treatment of compensation for tenancy surrender. Approached it in the correct way, Entrepreneur’s Relief can be used to cut the Capital Gains Tax rate on these payments from 28% to 10%. As ever, the timing is crucial.

A change in the way stocktaking valuations are made could have big tax implications for  farming businesses, warned speakers at the Central Association of Agricultural Valuers’ annual conference last week.

Moves to adopt International Financial Reporting Standards for stocktaking valuations would mean moving to a ‘fair’ basis which meant a market value, rather than the current cost or deemed cost basis. This will become the standard for medium sized companies (£6m-plus turnover) from 2013. It would feed into tax returns, accelerating profits which were not banked profits, said CAAV secretary Jeremy Moody.

The IFRS already applies to quoted companies and could apply to all farm businesses within five years or so.

Many new businesses could be missing out on Class 1 National Insurance savings of up to £5,000 for each employee and for up to 10 staff members.

Under the government’s NI contributions tax break scheme, eligible new businesses can take an NI holiday for each of the first 10 employees they hire in the first year of business. This is available to those which start up between 22 June 2010 and 5 September 2013 but take up has been slow. Only about 3,000 out of the estimated 130,000 eligible new businesses have taken it up, according to HMRC.

Many business owners were unaware of this measure, which operates everywhere apart from the south-east of England, said Mike Harrison, a partner with accountant Saffery Champness.
Although diversification within existing businesses could not benefit from these provisions, new ventures which were a separate employer from the main business could use the scheme, he said. The person running the new business (ie the employer) need not own the assets of the new venture so it is possible for a family member in a farming business to set up a separate new business and benefit from the NI relief. However relief is restricted to a maximum of about £6,525 for some agriculture related businesses.