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UHY-rural-and-agriculture-2015-2016-outlook
1. 2015/16 fiscal year
Helping you prosper
Rural and
agriculture
sector outlook
We understand that rural and agricultural enterprises are unlike other commercial enterprises,
and that you have unique practices and conventions. Our approach to each client is tailored
to recognise your individual circumstances. This is why we always build up an in-depth
knowledge of your business, to ensure we can shape our services accordingly and add value
wherever possible.
Our national rural and agriculture team has a genuine knowledge of the sector and the
relevant experience to help. We have a thorough understanding of the business structures
under which rural and agriculture businesses operate, whether that is company, partnership,
sole trader or a trust structure. We understand the practicalities of farming and are at home
speaking with, advising and acting for our clients, tailoring our approach to meet individual
circumstances.
We act for a range of landed estates, farming, horticultural and rural businesses, advising
them on the many issues affecting their businesses whether it is trusts, VAT, mixed farming,
diversification, treatment of expenditure on farm and other commercial buildings, rental
portfolios or the use of companies.
This booklet provides our perspective, as accountants, on some of the issues facing the rural
and agriculture sector for the 2015/16 fiscal year.
As well as some thoughts from our sector experts we have a guest sector contribution from
Giles Hanglin, of Savills Energy. Giles gives his perspective on powering up the agriculture
sector with renewable energy.
For further information, or to arrange a meeting to discuss your specific requirements, please
contact one of our rural and agriculture specialists named inside or read more about us on
our website at www.uhy-uk.com/rural-and-agriculture.
Our national rural
and agriculture
team has a genuine
knowledge of the
sector and the
relevant experience
to help.
2. CONTENTS
Editor’s View of the year ahead, Tim Maris 2
Guest feature - powering up the agriculture sector, Giles Hanglin 3
Timing is everything!, Brian Carey 4
A guide to the maze of bookkeeping software, Natasha Root 5
Diversification - beware of the pitfalls!, Amanda Millet t 7
How your farmhouse can qualify for IHT relief, Charles Homan 8
The importance of your business structure, Margot Madin 9
FRS 102 is now here - how will it affect you?, Amanda Millett 10
Horse liveries and BPR, Charles Homan 10
OUR RURAL AND
AGRICULTURE SERVICES
• Technical and taxation
• Raising finance
• Change in business structure
• Property transactions
• Passing on the family farm
• Business management
• Cash flow planning
1
3. I thought 2014 was going to be an
interesting year but it looks like 2015 may
top it, and not necessarily for the better.
The end of 2014 saw the price of our
commodities continue on their downward
trend with no particular respite in sight,
with the dairy sector being hardest hit. The
low value attributed to what is grown and
produced on our farms looks set to continue
through 2015 and into 2016, not a pleasant
prospect especially when we consider how
slowly the input prices have fallen. One can
only hope that the fall in oil based inputs
will seep through into the accounts sooner
rather than later and will stay for longer. Not
all is lost, there is some hope that costs will
decrease with inflation, now at 1%, and are
likely to remain below the Government’s
target of 2% for the foreseeable future.
The new Basic Payment System (BPS) is
proving a little troublesome to set up and
I dare say there will be delays in farmers
obtaining access. So, fingers crossed it does
not delay the payments due in December
2015.
I expect cashflow is going to be tight
throughout the year, the drop in incomes
mentioned above will be particularly painful
when the rent cheque or the tax payments
are payable. If this coincides with payments
for the investment in plant and machinery,
careful cashflow management will be vital.
Hopefully the investment in plant and
machinery was efficiency driven and there
will be annual benefits to the business’
bottom line as well as the tax incentives of
claiming the Annual Investment Allowance
(AIA). The AIA changes again on 31
December 2015 and as per the Budget will
be subject to a further announcement. In
the meantime see our follow up article by
Brian on how the timing of expenditure can
dramatically affect your entitlement to this
allowance.
Business structure and succession planning
were hot topics in 2014 and I think this
will continue as more pressure is placed on
businesses to consider the best structure for
future profitability and development. We
look at this area with an article by Margot
(p9) and follow this up with some of the
issues to consider when planning new
ventures and diversification on the farm,
as you will see in Amanda’s article (p7) on
Diversification - beware of the pitfalls.
There is plenty to think about as we
go through 2015. There are always
opportunities that arise from reviewing what
you are doing and why you are doing it. Talk
to your professional advisers, accountants,
consultants; organise that pre year end
meeting. Planning and implementing even
small changes can have a big effect on the
future and often turn out for the better.
Attention to detail and the involvement of all
the management team in the business plans
for the future of the business will make all
the difference.
We wish you all the best for the coming
12 months and hopefully our insights will
be of interest to you. If we can be of any
assistance, please do not hesitate to contact
us. We very much look forward to hearing
from you.
Tim Maris
Director
Royston, Cambridge and East Anglia
e: t.maris@uhy-uk.com
Planning and
implementing even
small changes
can have a big
effect on the
future.
2
RURAL AND AGRICULTURE
EDITOR’S VIEW OF THE YEAR AHEAD
4. Looking forward, the country is taking
coal-fired generators offline over the coming
years, with some predictions suggesting that
this will take national generation capacity
below the minimum strategic requirement.
While many businesses have installed
back-up generating schemes over the past
few years, many more have not. Managed
correctly, these factors come together to
provide opportunities for land and property
owners.
With all of those factors in mind, the
potential benefits of solar for the British
economy are phenomenal and the UK is
currently at the forefront of innovation when
it comes to establishing the most appropriate
solutions for solar installations.
The Solar Trade Association (STA) has
suggested that home-grown UK solar will be
cheaper than gas by 2018; and cheaper than
wholesale electricity prices by 2028. The
Centre for Economics and Business Research
thinks this parity with wholesale electricity
could come even earlier, perhaps in 2024.
The STA research into large-scale solar
installations, of 10MW and above, also
shows that a growing supply chain in the
UK and falling global component costs will
substantially bring down the total required
investment for farm-scale solar over the next
15 years.
Of course, for all of this to happen, it is
essential that government policy is consistent
and that landowners and business managers
are able to access all of the facts to make
a decision about whether solar is right for
them. The latest Savills Estate Benchmarking
Survey showed that 70% of landowners had
assessed the renewable energy potential
of their estate recently, with another 12%
planning to do so within a 12 month period.
However, many identified grid capacity,
planning requirements and energy storage as
key barriers to progress.
Agricultural and commercial organisations
continue to be driven by the need to drive
out cost from the supply chain and one of
the key areas to do so is around energy. For
many circumstances, the pay-back for solar,
regardless of the current FiTs environment,
is just too great to ignore. With a return
on investment of as much as 15% on a
commercial rooftop for both the owner
and tenant, if applicable, the opportunity
to ‘green-up’ the portfolio while addressing
the challenges of energy costs and energy
efficiency is substantial.
Of course, solar is not right for everyone
and it is important that landlords engage
with experienced advisers who can
identify, develop and commercialise energy
generation opportunities to achieve valuable
commercial benefits. Many commercial
buildings have already been transformed to
deliver future energy needs and we expect
this trend to continue over the coming
decade, especially with the government’s
2020 targets in sight.
Giles Hanglin
Director of Agribusiness
Cambridge
Savills
e: ghanglin@savills.com
3
RURAL AND AGRICULTURE
GUEST FEATURE - POWERING UP THE AGRICULTURE SECTOR
As the International Energy Agency (IEA)
announces that solar power could replace
coal as the world’s primary electricity source
by 2050, it is crucial to understand how the
countryside land and business economy will
need to develop to make this prediction a
reality.
Giles Hanglin, director at Savills Energy,
explains the steps which will need to be
taken by agriculture and rural commercial
businesses to make the most of the solar
opportunity now, as well as suggesting
the role government will need to play in
commercial roll-out success.
It is clear that solar power has become a
topic of contention for the government in
the run-up to the General Election in May
2015. Indeed, the CLA itself has recently
come out in response to assertions from
Secretary of State for the environment,
Elizabeth Truss, that solar farms are “a blight
on the countryside.”
Responding to the attack on ground
mounted solar, the CLA, alongside the
NFU and the Farm Power Coalition, has
argued that agricultural activity can co-exist
alongside solar farms in order to produce
food and energy from the same hectares.
The Farm Power Coalition argues there is a
potential untapped 20GW of solar energy
within the agricultural sector.
Indeed, while the UK government cannot
actually put a figure on the amount of land
allegedly lost to renewables, the CLA is
working with its partners throughout the
country to outline how much is gained from
co-locating solar panels alongside livestock
grazing, biodiversity projects and crop
pollination.
Renewable energy has the potential to
fundamentally transform the profitability
of business in the rural sector. Historically,
many landowners strengthened their
business by spreading risk and developing
multi-faceted income streams; renewable
energy can be viewed in the same way.
The benefits of embracing renewable
technologies include the diversification of
a land owner’s portfolio, generation of an
additional source of income, the value of
sustainability when securing contracts to
supply to retailers, as well as hedging against
future rises in energy prices. After all,
rising prices, dramatic weather and supply
and demand fluctuations are all adding to
volatility in profits for countryside businesses.
The potential benefits
of solar for the
British economy are
phenomenal and the
UK is currently at
the forefront of
innovation.
5. In our 2014/15 Sector Outlook we looked
at the extension to the AIA, for the period
1 or 6 April 2014* and 31 December 2015,
to £500,000 of capital expenditure that
could potentially qualify for 100% relief in
the year of expenditure. We also explained
the situations where entitlement to the
allowance could be denied if, for example,
you are a partnership with a corporate
partner.
As we are approaching the period in
which the £500,000 limit is ending, you
should begin to base your planning on the
AIA reducing to £25,000 from 1 January
2016. For example, if you are a business
which qualifies for the AIA and you also
straddle the 31 December 2015 period,
you will need to carefully review your
capital expenditure programme to ensure a
maximum claim is available.
If we take a company with a 31 March year
end, this change in the AIA will bite in the
accounting period ended 31 March 2016.
As a result of the huge reduction in
the value of the AIA, as from 1 January
2016, businesses will need to plan their
expenditure accordingly. For our March
client, in the year to 31 March 2016,
they would be able to claim total AIA of
£381,250, as calculated in the diagram
below.
To 31 March 2015
12 months @ £500k £500,000
£500,000
To 31 March 2016
9 months @ £500k £375,000
3 months @ £25k £6,250
£381,250
To 31 March 2017
12 months @ £25k £25,000
£25,000
4
Potential pitfall - lead time
One of the potential pitfalls to look out for
is expenditure timing. For example, if you
identify qualifying expenditure of £380,000,
depending on the period in which you
incur that expenditure, the difference in
relief could be thousands. If you incur the
expenditure in the period to 31 December
2015, then you will qualify for full relief on
the total £380,000. If the expenditure is
incurred in the period between 1 January
2016 and 31 March 2016, the maximum
you will qualify for is £6,250. This difference
in timing could cost you relief in the year
of £306,475 which at a tax rate of 20% is
£61,295 in cash terms.
The timing of when you incur expenditure
could cost you thousands. For timing,
the general rule is that the expenditure is
incurred when there is an unconditional
obligation to pay. This may or may not
coincide with the invoice or delivery date.
As shown above, timing can be crucial to the
limits in force.
Where assets are taken on hire purchase or
similar, unless they have been brought into
use, allowances can only be claimed up to
the amount of the capital actually paid off
the HP agreement.
You need to ensure that you factor in lead
times to your larger acquisitions, as ordering
is not necessarily sufficient to crystallise the
capital allowance claim. The legislation
states that to qualify as expenditure, the
expenditure must be incurred and the asset
must be owned by the ‘person’ at some time
in the chargeable period.
You may need to consider entering into
contracts whereby you are obliged to make
more than just a normal deposit to secure
the asset. For combine harvesters bought
during March year ends, this can be a real
issue.
If you would like to discuss how our team
could assist you, or for further advice on any
other aspect of farming business planning,
please speak to your usual UHY adviser or
find details of your local office at the back of
the Outlook.
Brian Carey
Partner
Kent and South East
e: b.carey@uhy-uk.com
*1 April for companies or 6 April for
unincorporated businesses
1 April
2014
31 March
2017
31 March
2015
1 April
2015
31 March
2016
1 April
2016
1 January 2016 new
rate introduced
RURAL AND AGRICULTURE
TIMING IS EVERYTHING!
AN EXAMPLE OF THE POTENTIAL TAX BENEFITS
6. SAGE
Sage has often been criticised for being
software designed by accountants for
accountants, however, over recent years
it has developed into a much more user
friendly programme. It is now widely
recognised and if you use a bookkeeper you
will have no trouble finding one that has
experience of Sage.
Good for:
• Smaller businesses with one of two
streams of income.
• Great telephone support and an extensive
bank of online resources.
• Sage is well-known in the marketplace
and so you will never be short of people
that can provide advice.
Downsides:
• Requires some training if you have not
used a bookkeeping programme before.
• Not designed with agricultural businesses
in mind.
Cost:
Sage Instant is available from £135. Sage
also offer a payroll programme and a cloud
based version, SageOne, of the software.
Our rating:
Ease of use 6/10
Reporting 7/10
Price 9/10
Overall rating 22/30
5
A GUIDE TO THE MAZE OF BOOKKEEPING
SOFTWARE
RURAL AND AGRICULTURE
There are many brands of bookkeeping software and choosing one for your business can be
difficult. We understand that no two businesses are the same and we can help you find the
best bookkeeping software for you. This guide looks at some of the most commonly used
bookkeeping software and how each programme can benefit you.
A good piece of software does not have to cost the earth and if used correctly can be
invaluable to your business. The ability to run financial reports at the click of a button will
enable you to make more informed decisions, control your costs and keep an eye on your
margins. Tidy business records often result in cheaper accountancy fees too!
KEY ACCOUNTS
KEY32 has recently had a revamp and is to
be replaced by KEYPrime.
Good for:
• Businesses with multiple properties. If you
have multiple properties to manage you
would benefit from KEYPrime Property.
This can be integrated with KEYPrime or
used as a stand-alone product.
• Larger farms and estates with multiple
enterprises. Through KEYPrime you can
now link to the Farmade Gatekeeper
programme for crop records.
• Group training sessions. Sessions are
run across the country, providing an
opportunity to keep up-to-date with new
programme features and offering support
for any questions you may have.
Downsides:
• More appropriate for larger farms and
estates rather than smaller businesses.
• Not as widely known as other
programmes.
More comprehensive than some of the
alternatives, which is great if you would like
plenty of detail but can be complicated if
you want an easy life when it comes to your
bookkeeping!
Cost:
Cost varies dependant on the size of
business and the software currently in place.
This industry specific software will be more
costly than a standard package.
Our rating:
Ease of use 7/10
Reporting 8/10
Price 6/10
Overall rating 21/30
A good piece of
software does not
have to cost the
earth and if used
correctly can be
invaluable to your
business.
7. 6
FARMPLAN
As the name suggests Farmplan is designed
with the agricultural industry in mind and,
as a result, has many features that other
programmes may lack.
Good for:
• The enterprise and search code features
make this software great for businesses
with multiple streams of income. Detailed
reporting enables you to see how each
element of your business is performing.
• You can allocate costs to individual items
of machinery or property, which will keep
track of how much each item is costing
you to run and maintain.
• Excellent additional packages, such as
Gatekeeper crop management and Earnie
payroll, mean that you can keep tabs on all
aspects of your business.
Downsides:
• Expensive in comparison to other software.
If you are not going to use the majority of
its features then we suggest considering a
cheaper alternative.
• Not all accountants will have knowledge
of this software, so make sure you have a
specialist accountant who is familiar with
Farmplan.
Cost:
Prices start from £375 for Cash Manager,
although most farming business use invoiced
based VAT which will require Business
Manager priced from £1,045.
Our rating:
Ease of use 8/10
Reporting 9/10
Price 6/10
Overall rating 23/30
XERO
Xero is a cloud based programme that was
developed in New Zealand where it is the
software of choice for farmers.
Good for:
• Instant access via the internet or Xero app
whenever, wherever. You can also let your
accountant have access so that they can
monitor your financial data throughout the
year.
• Live bank feeds mean you will no longer
have to enter all those bank receipts and
payments, as it is automatically done for
you!
• A significant variety of add-on options are
available, including Farmflo, which means
you can manage every aspect of your
business.
Downsides:
• Requires an internet connection, so will not
be appropriate if you struggle to maintain
a reliable connection within your area.
• Cloud based software is still a fairly new
concept and can take some getting used
to.
• Reporting features are not as detailed as
other industry specific programmes.
Cost:
Prices between £9 - £25 per month.
Our rating:
Ease of use 9/10
Reporting 7/10
Price 8/10
Overall rating 24/30
RURAL AND AGRICULTURE
IN SUMMARY
Most software companies offer a free
trial, so if you like the sound of any
of the programmes we have reviewed
why not give them a go! We are on
hand to help you get started and can
provide extensive training, if required.
For further information, please speak
to your usual UHY adviser or find
details of your local office at the back
of the Outlook.
(Prices quoted exclude VAT)
Natasha Root
Portfolio Manager
Letchworth and East
Anglia
e: n.root@uhy-uk.com
Most software companies offer a free trial, so if you like the sound
of any of the programmes we have reviewed why not give them a go!
8. 7. Farm becomes partially exempt
for VAT purposes. Setting up a non-
farming venture can have unwelcome VAT
implications. If the source of income is VAT
exempt, such as rental income, this could
have an impact on VAT recovery and you will
need to refer to the partial exemption rules.
This could mean less VAT being reclaimed on
certain types of expenditure.
8. VAT planning opportunities are
missed. It may be that the new enterprise
can be established as a separate business
entity so that it has its own VAT registration
threshold. This would mean that taxable
supplies would be outside the VAT net until
the new enterprise had become established
enough to register in its own right.
9. Valuable CGT reliefs available to new
businesses are overlooked. New ventures
could qualify for the Enterprise Investment
Scheme (EIS) or Seed EIS which offer
significant CGT reliefs and can thereby assist
in the diversification process.
10. Opportunities to change the business
structure are overlooked. Combining
a new venture with an existing successful
farming business could lead to higher
income tax rates being applied. You may
wish to consider running the new venture
as a separate business, particularly if there
are family members who are not using their
personal allowances or basic rate tax bands.
A company structure can be advantageous
– potentially giving more flexibility when
profits are drawn and lower rates of tax, as
well as offering protection to the existing
business against risk from business failure if
things go wrong.
Diversification can be an incredibly important
means of boosting income and business
value and, with the appropriate planning,
skills and advice, can be hugely beneficial to
landowners and rural businesses.
If you have any concerns regarding the tax
implications of diversification, please speak
to your usual UHY adviser or find details of
your local office at the back of the Outlook.
Amanda Millett
Partner
York and Yorkshire
e: a.millett@uhy-calvertsmith.com
Diversification is an attractive opportunity
to increase income, but landowners and
rural businesses need to be aware of the tax
differences between farming and alternative
uses of land that may arise as a result of
diversification. Farming attracts unique tax
reliefs and rules, and it is essential when
moving to alternative uses of land that all
the main tax reliefs available to farming
businesses continue to be used to maximum
benefit. There are a number of pitfalls
associated with diversification which we have
outlined below.
1. Inheritance Tax (IHT) reliefs are put at
risk. If the land around the farmhouse is put
to non-agricultural use this may remove the
house and associated land from exemption
from IHT.
2. Capital Gains Tax (CGT) reliefs are put
at risk. With the move to diversification,
the main CGT reliefs available to the farming
business may be lost. It is important to
preserve the potential availability of roll-over
relief, hold-over relief and Entrepreneurs’
Relief.
3. Accounting records are no longer
suitable. A lack of distinction between
expenses from different activities (farming
and non-farming) can lead to confusion
over which expenses are claimable against
tax for each business. Where possible and
practicable there should be a separation
of expenses and they should be allocated
appropriately.
4. Loss relief claims are not secured.
Full relief may not be claimed for losses
arising in the new venture, particularly in the
early years. It is important to ensure that
the maximum amount of tax relief is claimed
on any losses incurred and all available tax
allowances are claimed.
5. Loss of farmers’ averaging. Farmers
may, if eligible, elect to average their profits
for tax purposes. This benefit may be lost in
the course of diversification. It is important
to keep non-farming profits separate in order
to avoid losing some of the benefit from the
farmers’ averaging rule.
6. Loss of job-related accommodation.
There is a risk that workers undertaking
non-farming duties could lose the
tax-free status of job-related accommodation
available to farm workers.
Diversification can
be an incredibly
important means
of boosting income
and business value.
RURAL AND AGRICULTURE
DIVERSIFICATION - BEWARE OF THE PITFALLS!
7
9. 8
RURAL AND AGRICULTURE
The cottage or farmhouse must be occupied
by someone employed in farming, a retired
farm employee or the spouse or civil partner
of a deceased farm employee. They must
occupy the property as a tenant under
a lease granted as part of their former
employment contract or a protected tenant
with statutory rights.
In the past, we have seen HMRC challenge
claims when, for example, an older farmer
retires, but still remains in the farmhouse.
HMRC are prepared to challenge any claim
for APR on the grounds that the farmhouse
has now become a ‘home for retirement’.
HMRC defines the farmhouse as a dwelling
for the farmer from which the farm is
managed. The farm management and
operations must be conducted at the
property for it to be a farmhouse. Be careful,
if part of the farming operation is run from a
farm office or the managing agents’ office, it
may impact on the availability of APR to you.
It is critical that you consider the current
ownership and occupation of your
farmhouse along with any associated
cottage(s) and land. You need to consider
the occupation structure under the current
APR legislation. Look carefully to ensure
occupation is tied to the agricultural activity,
and that you have retained sufficient
evidence to defend this position should it
be challenged when you make the claim
for APR. With careful planning we may be
able to improve your IHT position prior to a
chargeable event occurring. A chargeable
event for IHT could be death or a gift to a
trust which could give rise to a tax liability
where APR would be claimed.
Hope or development value and the value of
sporting rights will not be covered by APR.
This is where you need to consider Business
Property Relief (BPR) to assist with planning.
BPR can give 100% relief (businesses,
interests in businesses, shares in unquoted
companies) or 50% relief (land, buildings,
and plant owned by the person making the
transfer and used by a company/business/
partnership under their control), depending
on your specific circumstances.
If you would like to discuss how our team
could assist you, or for further advice
on any other aspect of farming business
planning, please speak to your usual UHY
adviser or find details of your local office at
the back of the Outlook.
Charles Homan
Partner
Brighton and East
Sussex
e: c.homan@uhy-uk.com
If like many farmers you own your
farmhouse as part of your business, you
need to understand if it qualifies for
Agricultural Property Relief (APR). APR has a
huge advantage in that Inheritance Tax (IHT)
can be extended to include your farmhouse
as well as the land you use for agricultural
activities. You then have the benefit to
choose whether to pass on your agricultural
property, free of IHT, either during your
lifetime or as part of your Will.
To qualify for APR, agricultural property is
defined as land or pasture which is used to
grow crops, or to rear animals intensively. It
also includes:
• stud farms for breeding and rearing horses
and grazing;
• trees that are planted and harvested
at least every ten years (short-rotation
coppice);
• land not currently being farmed under the
Habitat Scheme;
• land not currently being farmed under a
crop rotation scheme;
• the value of milk quota associated with the
land;
• some agricultural shares and securities;
and
• farm buildings, farm cottages and
farmhouses.
The value then, including the permitted area
qualifying for APR, is based on the value
as if it could only be used for agricultural
purposes. The permitted area incorporates
the garden and buildings within the
grounds, so long as they are required for
the reasonable enjoyment of the dwelling
house. The value then, including the
permitted area that will qualify for APR, is
based on the value as if it could only be used
for agricultural purposes. The value of the
farmhouse over and above the agricultural
value, such as the open market price of an
attractive country residence, does not qualify
for APR.
You need to note that derelict buildings and
property, subject to a binding contract for
sale will not qualify for APR, so you need
to consider these buildings carefully. We
can help you to plan how they should be
used commercially on your farm or estate to
achieve the best out of the valuable reliefs
which are available to you.
HOW YOUR FARMHOUSE CAN QUALIFY FOR IHT RELIEF
APR has a huge
advantage in that
IHT can be extended
to include your
farmhouse as well as
the land you use for
agricultural activities.
10. Planning for your future
We act for many rural-based businesses,
farms, landed estates, horticultural and
equestrian enterprises and we see that, for
some, diversification is part of their survival
or growth plan. If you are planning to
expand or diversify, you should consider your
current structure and whether now is the
time to convert or to set up a new company
or LLP.
Your future plans play an important part
in deciding on the best structure for your
business. If you do not have family to take
over in future, you may be planning to sell
the business to a third party, and the amount
of CGT you pay will depend upon your
ownership of the assets and the business
structure you have operated through.
Trusts
Tax matters can become much more
complicated if you own land or property,
some of which may be rented out, and you
should consider whether a separate business
structure or a trust might be a good idea
in your case. This may protect assets from
leaving the family, in the event of disputes,
divorce or death.
Rental income
On farms and estates, it is quite common to
rent out land to other farmers, land-users,
equestrian and horticultural businesses, and
to run caravan sites and holiday homes.
We would recommend that you consider
alternative business structures, to minimise
the effect of capital taxes in the future. If
you have surplus land or property, and wish
to rent it out, take our advice first.
Renewable energy
We are still hearing of clients who are
being approached to have wind turbines
or solar/PV panels in their fields, on a
rental basis. We recommend that you
talk to us before you go ahead, as this
can have a significant effect on your CGT
and Inheritance Tax in the future, as well
as on your taxable profits, and on who
benefits from the Feed-in Tariff incentives
available. We can help you to tweak the
arrangement to your advantage, which
may involve a separate business structure,
or may be contained within the existing
business.
If you would like to discuss your business
structure and the options available to you,
please speak to your usual UHY adviser or
find details of your local office at the back
of the Outlook.
Margot Madin
Partner
Nottingham and East
Midlands
e: m.madin@uhy-uk.com
Whether your farming business or other
rural-based enterprise is long-standing
or was set up fairly recently, we would
suggest that you consider how it is
structured because there are advantages and
disadvantages with each different structure.
Depending on you and your future plans for
your business it is important to review your
current structure from time to time with your
UHY adviser.
Partnership, company or LLP?
Many farms are run by several generations
of the same family, and are traditional family
partnerships, albeit that some assets such
as land and properties may have been put
into trusts, to protect them and prevent
them from leaving the family in the event of
untimely death or divorce.
Some farming businesses and many
other rural enterprises are run through
limited companies which allow them to
take advantage of the tax breaks that are
available.
Other farming businesses are split so that
certain parts of the business are run through
a limited company, whilst the family are
still in a partnership. A few are also run
through Limited Liability Partnerships (LLPs),
a hybrid structure, which enables individuals
and companies to share in the profits of a
business to some tax advantage. However,
these are now coming under attack from
HMRC.
There are a number of differences between
the structures and each option should be
considered carefully. An LLP is similar to a
partnership, but brief accounts (essentially
the balance sheet and brief notes) have to
be filed at Companies House. On the plus
side, members of an LLP are protected from
liability when the business runs into debt or
litigation and, therefore, this reduced risk can
be attractive.
As a member of an LLP, you still have to pay
Class 4 National Insurance (NI), on top of the
tax, on your profits, whereas if you are the
director and owner of a limited company,
you can significantly reduce or eliminate your
liability to pay NI.
In order to decide on the best structure for
you, you should seek advice from your UHY
adviser, as your personal circumstances and
future plans will be very relevant in making
this decision.
9
THE IMPORTANCE OF YOUR BUSINESS STRUCTURE
There are a number
of differences between
structures and each
option should be
considered carefully.
RURAL AND AGRICULTURE
11. 10
The Financial Reporting framework has
changed with Financial Reporting Standard
102 (FRS 102) and although it is only
mandatory for corporate businesses, if you
are an unincorporated entity, it will change
the way you prepare your accounts.
The new accounting standards have been
in effect for accounting periods which
commenced on or after 1 January 2015.
As an unincorporated entity FRS 102 will
replace the current UK Generally Accepted
Accounting Practice (GAAP).
Though there are many changes afoot which
apply to all types of entity, FRS 102 includes
a section on agriculture; the first time that
this has been specifically addressed within
UK GAAP.
The new standard provides two options
for valuing each class of biological asset,
such as animals or crops in ground. These
assets can be valued in the business balance
sheet at either the lower of cost or net
realisable value, or at fair value less costs
to sell at the year end. Once the fair value
method has been adopted by an entity
it cannot be subsequently changed. For
corporate entities there are various disclosure
requirements under either option within the
company’s accounts.
So what does this mean for your business?
• Clear record keeping will be essential
in order to fully comply with the
accounting and, where relevant, disclosure
requirements as a result of these changes.
• Thought needs to be given to the best
basis of valuation for your business
once the first set of accounts under
these standards is prepared. A change
in valuation basis can affect both your
balance sheet and your accounting profits
which may or may not be favourable
depending on your objectives. Your usual
UHY adviser will be able to determine the
best option for you.
If you have any concerns regarding FRS 102,
please speak to your usual UHY adviser or
find details of your local office at the back of
the Outlook.
Amanda Millett
Partner
York and Yorkshire
e: a.millett@uhy-calvertsmith.com
FRS 102 IS NOW HERE - HOW WILL IT AFFECT YOU?
If you own a livery business and grant horse
owners license to occupy land as a
do-it-yourself (DIY) livery, do not take it for
granted that the business will qualify for
Business Property Relief (BPR).
BPR should be available as long as you
provide services in addition to the letting
of land and buildings. However, HMRC
have been trying to deny BPR on the trade
of horse liveries where horse owners are
granted licenses to occupy land as a DIY
livery.
If you own a livery where an element of care
is provided, for example, feeding, mucking
out, putting out to graze etc., then trading
status will apply to your business and BPR
can be claimed. If your stables are rented
out for DIY livery purposes, then your
business operation is not trading income and
so not eligible for BPR.
To ensure you qualify for BPR you will need
to demonstrate that your business was
carried out with a view to a profit and that
it was conducted in a regular manner on
sound commercial and recognisable business
principles. It is vital that you maintain good
accounting records to demonstrate your
trading activity in order to give you the best
possible chance of a successful claim for
BPR. This will then enable you to reduce the
amount of Inheritance Tax (IHT) payable on
death or on lifetime gifts to trusts.
We can work with you to recommend a
number of options to strengthen your case.
For example, grazing agreements can be
beneficial here, but if they are not carefully
drafted, clarifying the services that are
included and provided by your livery business
including responsibility for fertilising the
grass, maintaining the fences and hedges,
emergency feeding and vet cover, security,
provision of feedstuff and hay and general
care, they may indicate investment rather
than trading activity. The appropriate
insurance policy will also assist with your
evidence.
We recommend that you start to collate and
retain your evidence now as, after death, the
best witness, you the business owner, will be
dead. A strong trading case for your livery
business will also assist with any sideways
loss relief claims for income tax purposes.
If you would like to discuss how our team
could assist you, or for further advice on any
other aspect of farming business planning,
please speak to your usual UHY adviser or
find details of your local office at the back of
the Outlook.
Charles Homan
Partner
Brighton and East
Sussex
e: c.homan@uhy-uk.com
HORSE LIVERIES AND BPR
RURAL AND AGRICULTURE
