31 March 2000

Agrimoney aid split threatens higher tax bills

By Robert Harris

MANY arable farmers face much higher tax bills than expected for the current tax year because agrimoney compensation due to be paid over the next two years is linked to the 1999 harvest.

The payment, designed to offset the ending of the green rate freeze in January 1999 which cut the value of arable area aid by 14%, is being paid in three tranches.

The first of these, worth about £169m across the UK, has recently been sent to farmers. This means a cereals grower in England, for example, is £33/ha (£13/acre) better off.

Provided the UK matches Brussels contribution, the grower stands to gain a further £22/ha next February, and a further £11/ha 12 months after that, at current exchange rates.

It is the tax on this outstanding amount that could catch farmers out, says Mike Harrison, a partner with chartered accountant Saffery Champness. "This could cause a further cash crisis for some farmers who have sold all of their 1999 harvest and have a financial year end before Apr 15, 2000. They will find themselves paying tax to the Inland Revenue, despite having only received about half the possible subsidy."

That could amount to more than £1500 for a farmer with 200ha (500 acres) of cereals, paying 23% tax.

The matter is complicated by the governments apparent lack of commitment to the project. Under EU rules, it does not have to pay its share, so farmers may only receive half the outstanding amount.

"This makes it very difficult to know what figure to include in the tax returns," says Mr Harrison.

There is an urgent need for clarification to avoid adverse effects on cash flows, which are already finely balanced, he adds.

Terry Donaldson, of the NFUs tax department, agrees. "The Inland Revenue has confirmed that monies to be paid out at a later date will be treated as debtors, and will be brought in as income. But it doesnt matter if accounts end before or after April – it will still be included in one set of accounts." The NFU is still questioning if this is technically correct with the IR and MAFF.

Livestock farmers will also be affected, and all sectors are eligible for further compensation to offset the effect of the strong £, he adds.

Part of this relates to the undermining of prices in 1999, which is theoretically worth a further £62m in compensation over the next three years, and the rest due to devaluation of direct payments in 2000/01, which could be worth a further £300m over three years.

"But much of this is dependent on the UK government paying its share," says Mr Donaldson. "We believe the money should not be treated as income until government commits to paying it." &#42