Farmers warned to treat support payment taxation carefully

Many farmers will now be preparing their books for the accountant. But be sure to treat taxation of support payments with care, writes Strutt & Parker’s George Chichester.

Single Farm Payment

The value of the 2006 Single Payment will not be accurately known for many months. So businesses that end their trading year on 30 September will have to provide an estimation of what they are owed. The outstanding amount will fall into ‘debtors’.


But this will only apply if their obligatory 10 month occupation period had finished by 30 September, in which case they must show 75% – 9 of the twelve months – of the anticipated full payment as a debtor.

Entry Level Stewardship

Payments under this scheme are made six monthly, in arrears. Payments received might partly cover the period up to 30 September. Payments received after the year-end should be shown as a debtor, calculated on pro-rata basis.

For Countryside Stewardship and Environmentally Sensitive Area Scheme payments, tax treatment must be consistent with previous years. So these should be accounted for on either a payments basis, or on time apportioned, whichever has been the case in the past.

Higher Level Stewardship

For new payments, annual income should be accounted for in the same way as ELS payments. So, treat as a debtor, on a time apportioned basis.

For capital grants relating to work undertaken in the year ending 30 September, but for which payment has not yet been received, or a claim has not been made, a debtor provision should be made for the estimated value of the grant. This should be offset against the costs incurred in undertaking the relevant work.

Closing Valuations

These are usually based on cost, deemed cost or net realisable value. Under the Single Payment Scheme, the value of crops in store no longer includes any subsidy payments as it did under IACS. 

Given that commodity prices have risen, it may be that a valuation based on cost alone will provide a lower value than deemed cost or net realisable value, and thus deflate profits and defer tax liabilities. But the basis of valuation must remain consistent with past years (unless there are good reasons to justify a change). 

Income from Let Land

Where income has been received from letting land with SPS entitlements, remember that there are two separate income tax brackets involved.

Straightforward rental income is taxed under Schedule A, but income from letting the entitlements is taxed under Schedule D, case VI. Coupled with this, the tenant might be liable to stamp duty on the rental of land, but not the rental value of entitlements.

Still a farmer?

A farmer who has given up farming and simply claims the Single Payment – either leaving land uncropped or allowing another farmer to crop the land at their risk – could be deemed to have ceased the trade of farming altogether. This could have significant income tax implications and might also require the business to deregister for VAT.


Still more importantly, it could mean the farm business loses the benefit of Agricultural Property Relief on the land and the farmhouse. Farmers in this case should seek advice from their accountant.

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