Most farmers will keep tax reliefs under SFP

MOST FARMERS will remain eligible for key tax reliefs under the new single payment regime, Her Majesty’s Revenue and Customs has confirmed.

For full analysis, click on Your Business (left) and go to Taxation Guides

The government agency has completed two years of deliberation on the SFP and has at last released guidance.

David Missen, a partner at chartered accountant Larking Gowen, said the single farm payment would usually be treated as farming income when assessed for income tax.

But where production has ceased and the business kept on for profit, the SFP is counted as trading income, and in so-called “pony paddock” farming, income will be taxed at a much higher non-trading rate.

“Expenses claimable against this are likely to be heavily restricted, so the tax bill is likely to be a lot higher,” said Mr Missen.

HMRC also confirmed that the SFP will be taxable at the end of a farmer’s 10-month qualifying period and not when actual cheques are received (see Business, May 27).

Inheritance tax relief is available as long as the claimant intends to return the land to agricultural production at some point.

However, payment entitlements will be subject to capital gains tax and are deemed to have come into existence on Jan 1, 2005.

“Revenue and Customs have knocked on the head the idea that payment entitlements derive directly from the old quotas that they have replaced,” Mr Missen said.

They would be treated as new assets separate from land – generally business assets if SFP income is treated as trading income, he added.

This is a big change for farmers, who should take care to work out the implications before buying, renting or selling entitlements.

Single farm payments are not subject to VAT, but if entitlements are sold separately or with land, then they are likely to be standard-rated.

Are you, like many other farms, missing out on tax claims for R&D?

If you’re a limited company, you could be eligible for tax credits if you’re carrying out R&D on your farm. For more information and to find out if you’re eligible visit our R&D tax credits page.

Find out more
See more