First Milk farmers will likely miss out on any tax relief from the co-op’s decision to turn members’ capital into shares.
The switch, announced in March in an effort to strengthen the processor’s balance sheet, will mean a sharp drop in the value of farmers’ investments.
Members’ capital totalled more than £50m in the year to 31 March 2015, but First Milk’s assets only totalled £6m. As those are the most recent figures, it is unclear how much the shares will be worth.
Farmers who had left the co-op and expecting payouts worth thousands of pounds were disappointed when the news broke.
But continuing First Milk members could also lose out.
Rob Hitch, partner at accountant Dodd & Co, told Farmers Weekly even though there is a big loss in the value of those shares, individual businesses and partnerships will not be able to claim any tax relief, he said.
This is because HMRC takes the base value for Capital Gains Tax as their market value on 1 July, when the change takes effect.
Farms trading as a company – roughly one in 10 across the country – may be better off; they are able to write down the value of the shares in their accounts, so can gain relief.
“Farmers that are companies need to make sure they do the best for themselves,” Mr Hitch said.
“Traders – individuals and partnerships – are stuck with it. They paid tax on that income but they won’t get any relief for not getting it back.”
When First Milk announced the move earlier this spring, opinion was divided between those waiting for payouts and those claiming the switch was needed for the co-op’s long-term health.
The processor is holding an extraordinary general meeting on 1 July to approve the changes.
NFU Scotland milk committee chair Graeme Kilpatrick said First Milk needed to clarify for members what their shares will be worth and speed up the election of a head of the new member council.