CenTax proposes NIC hikes for farming partnerships

A report from tax consultancy CenTax proposing National Insurance Contributions (NICs) on partnership income could increase financial pressure on farming partnerships already facing multiple challenges. 

The proposals come from the same think-tank that previously promoted significant inheritance tax reforms on farms and businesses, and later recommended amendments to mitigate the impact on farmers.

The report, Equalising National Insurance on Partnership Income: Revenue and Distributional Effects (PDF), pushes for extending employer-like NICs to partnerships – including family farms – to close what CenTax calls a “tax loophole”.

See also: Rural groups reject figures in new IHT impact assessment

Farming partnerships make up 17% of all partnerships, but contribute only about 2% (£40m) of the estimated revenue from these NIC reforms.

The report claims that if the Labour government were to implement its proposals, more than three-quarters of farming partners would probably avoid paying extra tax.

This is because of specific reliefs it is recommending for lower-earning partnerships,

However, even with these reliefs, CenTax estimates that each farm partner would see an increase of about £1,600 in their tax bill each year.

This would be a significant cost for many farms already squeezed by volatile markets, rising input costs and the controversial inheritance tax proposals that have sparked widespread concern and anger across rural communities.

The reforms threaten to undermine further the financial viability farming partnerships currently have, potentially forcing some to reconsider their business structure, face tighter margins or take more drastic action.

It comes at a time when the government says it is committed to increasing profitability for UK farm businesses.

A farm profitability review is currently being undertaken by Defra and headed by former NFU president Baroness Batters.

Expert reaction

Stuart Maggs, head of tax at Howes Percival LLP, gave his reaction to CenTax’s tax proposals to Farmers Weekly.

He said: “CenTax have released a report on partnership taxation which, while chiefly aimed at professionals, will see increases to National Insurance Contributions that also target farm partnerships.  

“While the report analyses the direct tax costs of being in partnership against being an employee, it does not appear to account for people’s reaction to such a change, including whether to remain self-employed alone rather than taking others into partnership alongside you.”

Mr Maggs voiced concern that CenTax had once again missed the opportunity to speak with the people potentially affected by its recommendations, to understand the broader impact at a human level, which in turn would feed back into the real impact on growth and tax revenue. 

“Tax policy is never going to be successful if the people considering it do not account for the impact of their proposals on families and businesses in the real world,” he said.

Treasury response

HM Treasury said it did not comment on speculation around future changes to tax policy.

But a spokesman added:

“We are committed to keeping taxes for working people as low as possible, which is why at last Autumn’s Budget, we protected working people’s payslips and kept our promise not to raise the basic, higher or additional rates of income tax, employee National Insurance, or VAT.”