CAP reform – consider tax and legal issues
CAP reform is raising legal, financial and practical questions which businesses need to consider in good time before the new regime starts in 2015, warns consultant Andersons.
While it is widely expected that the new Basic Payments Scheme (BPS) entitlements will be rolled on from current English Single Payment Scheme (SPS) allocations, these will be new in a legal sense, said head of research Richard King at the firm’s London CAP reform briefing.
This has potential tax implications, because when SPS entitlements cease to exist at the end of 2014, their value will become nil. This could create a capital loss for some businesses and careful tax planning would be needed to make use of this loss, said Mr King.
It also means tenancy agreements requiring SPS entitlements to be handed back at the end of the term may have to be revisited, he said.
The RPA would probably stop entitlement trading in mid-November 2014 to allow the required six weeks for SPS entitlements transactions to be processed in the run-up to the new BPS entitlements being allocated, said Mr King.
Any land transactions taking place after 1 January 2015 would have to be carefully timed and managed to ensure they were complete in time for the closure of the entitlement transfer window for the new BPS entitlement six weeks before the 15 May 2015 claim date.
The most recent progress on the reform agreed in September means EU Council regulations can be adopted in November, allowing implementing regulations to be drawn up late this year or early in 2014.
“The biggest area of uncertainty is over national implementation of the reforms,” said Mr King. National consultations on this will begin within the next two weeks.
Although transitional arrangements have been made for England’s Rural Development Programme for 2014, DEFRA and Natural England were moving towards a 1 January start date for all new agri-environment schemes, he said.
“This would mean a 1 January 2016 start date for agreements under the new regime, leaving a potential gap of almost two years in which it could be difficult to get into any scheme.”
Entitlements in Scotland and Wales will be allocated on an entirely new basis, moving from the historic system to a flat rate regional payment that will only be available to those who made a claim in 2013.
This will bring in some new areas not previously within the support system which could effectively dilute payment and could mean restrictions on the number of entitlements granted. Member states can also choose to limit the number of entitlements granted to moorland.
With approximately 5% of the land in Wales and 15-20% of land in Scotland “naked acres”, this has big implications for the allocation of entitlements and for payments in both of these countries.
One aim of the reforms is to reduce the variation in the rates of subsidy paid to farms in different countries, however considerable differences between various parts of the UK may remain because of the choices available to national governments, said Mr King.
The CAP reform package includes various top-up options, most of which Scotland, Wales and England are not expected to take up. Help for young farmers under 40 years old is, however, compulsory and will offer about £4,000 a year in extra support.
The reform is further complicated by two big political issues – Scottish independence and David Cameron’s promised referendum on EU membership.
Important questions remain about what crops will qualify under new greening rules as protein-fixing crops, also about sowing dates to distinguish winter from spring crops (winter and spring sowings are expected to count as separate crops within the same species under three-crop greening rules) and whether DEFRA will succeed in introducing an equivalent greening scheme to take its BPS claimants outside the scope of the three greening requirements set out in the reforms.
Dual use claims
While not part of the reforms, dual use claims in England are expected to come under even closer scrutiny in future. These are cases where one party claims the SFP and another claims environmental payments.
“The EU auditors hate dual use – DEFRA has resisted, but the introduction of BPS could be the chance to do away with dual-use claims. We need to lobby on blocking of dual-use claims,” said Mr King.