Cash-strapped local authorities may be looking more closely at rural businesses to identify opportunities to charge business rates, warns consultant Harry Baines of Brown & Co.
Farm buildings and agricultural land are exempt from business rates – as long as they are being used only for farming.
Complications can arise when farming businesses go into an associated activity such as contracting to such an extent that the local authority may argue that business rates are due.
Business rates – the legal stuff
Rates are charged by using a multiplier, typically about 50p/£ of the rental value
Exemptions for agricultural buildings are set out in the Local Government Act (2003) part 5 (non-domestic rates), section 67.
This states: “…a building is an agricultural building if it is occupied together with agricultural land and is used solely in connection with agricultural operations on that or other agricultural land, or… the members who are occupiers of the land together have control of the body…”
The key points are the inclusion of the word land and the phrase control of the body, says Mr Baines. “To be reasonably sure of qualifying for exemption, the use of the buildings must relate directly to adjoining farmland or at least other farmland.
“The phrase ‘together with’ is also important. The legislation does not specify distance between buildings and land, but a defence is likely to be stronger if that distance is not too great.
“Non-agricultural use, such as agriplastics recycling or storage of non-agricultural materials, will potentially result in loss of the exemption, including for operations run by the agricultural user.”
“The majority of farmer contractors carrying out agricultural operations only should have nothing to fear.
“Even if the local authority successfully argues that there is non-agricultural use and rates are chargeable, there may be scope to minimise the damage,” says Mr Baines (see advice box).
The structure of some farm businesses could affect liability to business rates, as the legal owners are not always the same as the legal occupiers.
For example, a typical family farm may be owned by mother and father, but farmed by a partnership involving mother, father and their son or daughter.
If that business is split between in-hand farming and contract farming which one member of the family carries out, or there is a particular machine which is solely used for contracting activities, there may be potential for the local authority to argue that the contracting activities are separate to the farming of the land, says Mr Baines.
“Another point to watch out for is a tenancy or lease [written or unwritten], either between family members, within the business or with a third party.”
Where planning is achieved for use of land or buildings other than for agriculture, the rating department often does not catch up with this for some time, if at all, says Mr Baines. However, where business rates are due, local authorities can charge up to six years’ back rates.
Business rates – advice
- Consider the structure of your business – does the ownership/activity/agreement/tenancy imply a separate contracting or other business? If yes, you may be able to change this but beware – the implications for other taxes could be larger than any threatened rates bill
- If you run non-agricultural activities alongside the farm business and these are rateable, it is practical to restrict these or the area of buildings they use, in order to reduce the rates bill?
- Are your activities likely to affect/upset neighbours – sometimes complaints are the route for local authorities to find out about non-agricultural operations
- Consider how you advertise any ancilliary activities – branded or liveried contracting vehicles may promote the business more widely than just to your potential customers
- Where buildings/areas are let to tenants for non-agricultural activities, make sure the tenancy agreement makes the tenant responsible should business rates become chargeable during the tenant’s occupation or subsequently
- You may be eligible for relief from business rates – businesses which only use one property and where the property’s rateable value is less than £12,000 qualify for 50% relief – contact your local council to apply
- Certain rural businesses also get extra help with business rates. Sometimes this can be extended at the discretion of the local authority
- Each let building could qualify seperately for business rate relief, especially if the tenant is responsible for paying the business rates