scruttonbland.co.uk
AND FARMING AGRICULTURE
Is The Sun Setting On The Furnished Holiday Let Boom?
Creating A Habitat Bank: What You Need To Know
Common Vat Mistakes In The Agricultural Sector
Contents
Welcome To Our Summer Edition Of Agriculture And Farming
3 Welcome To Our Summer Edition Of Agriculture And Farming
4 Is The Sun Setting On The Furnished Holiday Let Boom?
6 The Irony Of A Green Revolution
8 Creating A Habitat Bank: What You Need To Know
10 Spring Budget Brings Some Welcome Clarity On Inheritance Tax
Welcome to the latest edition of our Agriculture Newsletter. As I write this, the sun is streaming through my window which is a welcome sight after the challenging weather of recent weeks.
I n February we were delighted to participate in the organisation and delivery of the Suffolk Farming Conference with Suffolk Agricultural Association and Fram Farmers. Henry Dimbleby was the keynote speaker and delivered a thought-provoking talk, a segment of which is the subject of one of our articles reflecting on the advent of the Green Revolution of the 1950s and 1960s and its legacy of poor soil fertility and reduced biodiversity. Read more about this on pages 6 and 7. New government schemes are designed to address that legacy and the Spring budget provided some clarity on the tax implications for farms delivering those schemes. That budget also announced the abolition of the Furnished Holiday Lettings status of rented property and on pages 4 and 5 Chris George of our tax team explores the potential consequences as we wait for policy to catch up the announcement.
12 Common VAT Mistakes In The Agricultural Sector
I am grateful to our guest contributor Kate Russell from Tellus Natural Capital who explains the key considerations of Biodiversity Net Gain opportunities and what they can mean for farmers on pages 8 and 9. The responsibilities of the farmer include being an agent for the Government in administering VAT whilst keeping the books and Lydia Brasted from our outsourcing team provides insight into the common pitfalls and mistakes on pages 12 and 13. I am also delighted to report that Scrutton Bland has joined the Sumer Group, a national network of likeminded firms to champion small and medium sized enterprises. Read on pages 14 and 15 for more information but we believe this will enable us to deliver more for our clients and collaborate and share knowledge which is particularly important at such a time of transition for the agriculture sector. I hope you find our newsletter of interest and as we approach Show season, I look forward to seeing some of you out and about when I hope the sun will still be shining!
14 It’s Sumer Time...
16 Meet The Team
Nick Banks Business Advisory Partner
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A s travel restrictions were imposed during the COVID pandemic and nervousness remained regarding overseas travel following the lifting of restrictions, the UK prospered in a ‘staycation’ boom. We evidenced a number of landlords convert their long term let properties into holiday lets as demand outweighed supply and weekly rental rates jumped upwards. However, this has led to issues in the wider housing market. With interest rates increasing and a lack of properties being either sold or available to let, there was a slowdown in house sales and an increase in rental rates, pricing some out of the market all together. To help combat this, the Chancellor announced in the March Budget that the tax advantages currently offered to owners of FHLs were to be scrapped from 6 April 2025. This is likely to have significant impact on those individuals and businesses currently operating FHL properties. Chris George, Tax Advisory Partner shares his insight on what tax advantages are being removed: Mortgage Interest Deductions Currently, mortgage interest on a qualifying FHL property can benefit from a full deduction against income, resulting in an Income Tax saving of up to 45%. However, from 6 April 2025, the mortgage interest rules will follow those of other property lettings whereby only a maximum of 20% tax relief is available. For FHL owners with significant borrowings or those with multiple properties this could have a substantial impact on tax liabilities.
Is The Sun Setting On The Furnished Holiday Let Boom?
Capital Allowances Another major advantage of FHL properties is the availability of capital allowances. These allowances provide tax relief (in most cases at 100% in the year of acquisition) on various parts of the property as well as fixtures and fittings. This can include everything from a new bathroom to plates, sofas and beds. From April 2025, these allowances will not be available on future purchases of these types of assets. In addition, there may be a clawback of allowances previously claimed on FHL properties. While there is still some uncertainty about how any clawback would work, it could be that FHL owners have a tax charge equivalent to the current market value of any assets that have previously had allowances claimed and are still owned in April 2025. This could result in a significant tax charge in the tax year of change. Pension Planning Another benefit of FHL properties is that their profits were classed as trading income for pension purposes. This means that they count toward net relevant earnings which determine the level of pension contributions which can benefit from tax relief.
Capital Gains Tax Reliefs One of the other key tax advantages is the availability of Capital Gains Tax (CGT) reliefs on FHL properties. Currently, FHL properties benefit from CGT Holdover Relief meaning that they can be gifted to a family member without incurring any liability to CGT. This is attractive on those properties who are debt-free as it also can be passed down without an SDLT liability as well. From 6 April 2025 Holdover Relief will not be available on the gift of the property to individuals. In some cases, the disposal of an FHL can benefit from CGT relief known as Business Asset Disposal Relief (BADR). Utilising this relief means that the CGT rate on the disposal of the property falls to 10%. Other conditions also have to be met and BADR is not available on all FHL disposals, but from 6 April 2025, BADR relief will not be available on any disposals of FHL properties. The time to Act is NOW Unusually with tax changes, advanced warning has been given on the changes coming into force. This gives those affected the chance to plan for the changes in order to minimise their impact. For some, these changes will be the catalyst for reviewing their ownership of the FHL properties. Of course, the property could be changed to a long term let and the potential to have longer term tenants with more income security, however the tax treatment is now aligned with previous FHLs. Alternatively, property owners may look to sell up. With the reduction in the top rate of CGT applicable to property to 24% it is more attractive to sell especially for those who would not have qualified for the 10% BADR rate. Another option is to make use of the CGT Holdover relief while it is still available and pass the property onto children without incurring any CGT liability. As with all tax planning, there is no ‘one size fits all’ approach. Any FHL owners should seek professional tax advice to discuss the options available and weigh up the options before making any decisions. To get in touch with Chris George or another member of our Tax Advisory team, please call 0330 058 6559 or email hello@scruttonbland.co.uk
Over recent years, the market for
furnished holiday let (FHL) properties has increased dramatically.
Moving forward, FHL profits will be treated as investment income like all other rental property
profits and as such will not count as net relevant earnings for pension purposes.
In some cases, this will drastically reduce the amount of pension contributions that some landlords can make.
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The Irony Of A Green Revolution We were delighted to work with Suffolk Agricultural Association and Fram Farmers to stage the Suffolk Farming Conference in February 2024. The event was a great success, with over 200 delegates at Trinity Park taking time out to hear from a range of speakers about topical issues for farm businesses.
T he keynote speaker was Henry In 2023 he published Ravenous, a thought- provoking book which unpacks that report and challenges how the production of food and use of land must change to help our planet and counter increasing obesity through bad diet. Dimbleby presented extracts from his work at the conference and one segment that particularly piqued my interest was the work of Norman Borlaug. Dimbleby who in 2021 published the government commissioned National Food Strategy commonly referred to as the Dimbleby Report. Borlaug was awarded the Nobel Peace Prize for his post second world war work to breed a rust resistant, short stemmed wheat that achieved vastly greater yields than varieties grown to date. Given global population was soaring, the planet was destined for a food crisis with many facing starvation. Borlaug’s work avoided that crisis as food production across the world increased to meet demand.
Dimbleby writes in his book that “since 1930 we have lost 97% of our wildflower meadows, half of ancient woodland, 56% of our heathland and 90% of our lowland ponds”. He adds “Wheat yields in this country doubled from 1970 to today, while the number of farmland birds fell by 54%” It seems to me we are heralding another green revolution – one of Sustainable Farming Incentive, Countryside Stewardship and Landscape Recovery. I write letters to the Rural Payments Agency to support applications for capital grants to plant hedgerows. I participate in meetings planning the impact of decisions to take land out of production for nature, the capital allowance implications of changing a drill or a lower horsepower and lighter tractor and of course the capital taxes implication of whether some of what farmers are encouraged to explore remains agriculture. The latter was covered expertly by one of our Private Client Tax Partners, Paul Harris at the conference and whilst some clarity was provided in the Spring Budget, questions remain and are unlikely to be answered before a General Election.
The backdrop to all of this is climate change and the global agenda to reach net zero. Another green revolution is required but, in my opinion, this will potentially have a structural impact on the UK farming sector given the commercial implications and the viability of smaller scale farms. At Scrutton Bland we work with our farming clients to be on the front foot with the challenges faced during this period of transition from the basic payment scheme. We seek to collaborate with the circle of advisers around a farm business to make sure better decisions are made on a timely basis. For more information, please contact Nick Banks or any member of our specialist agricultural advisory team by calling 0330 058 6559 or emailing hello@scruttonbland.co.uk
+250%
Cereal production
Source: Food and Agriculture Organisation of the United Nations (2023) from ourworldindata.org
Cereal yield
+200%
Population (historical estimates)
+150%
+100%
+50%
Land used for cereal
+0%
1980
1990
2000
2010
2022
1961
1970
Not the graph presented by Dimbleby at the conference, but the following puts the outcome of Borlaug’s achievement into context: The land used for cereal growing has not expanded significantly since 1961 but evidently the output of cereals has increased markedly and that outcome is known as the Green Revolution. Understandably, Borlaug has been lauded and recognised for his achievements, but it seems to me that there is a certain irony to that green label given its legacy.
The advancement in food production technology was significant over that period. The new varieties saw widespread use of chemical fertilisers, pesticides and controlled irrigation. Farmers were encouraged to remove hedgerows to create bigger fields to farm on industrial scale. This intensive practice reduced biodiversity and destroyed soil fertility.
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Creating A Habitat Bank: What You Need To Know
Thinking of selling biodiversity net gain? Kate Russell of Tellus Natural Capital explains what you need to know...
T he statutory Biodiversity Net Gain (BNG) market is rapidly taking off and there is a lot of interest from farmers and landowners in developing habitat banks to supply Biodiversity Units (BUs) to developers who need to offset the damage that their development causes. Statutory BNG is a 30 year commitment with no guarantee of what the land can be used for afterwards, so it is vitally important to consider all the implications carefully. Here we look at the steps that need to be taken and consider some of the issues that farmers and landowners need to take into account. What land is suitable? The aim of a habitat bank is to increase biodiversity, so the best place to start is an area of low biodiversity, such as arable land or improved grassland. Think about where the site is within the wider farm and what impact it might have on adjoining land over the next 30 years; could it complement an existing enterprise, such as a camp site? Or might it form a personal green belt to protect views? A huge amount of information on habitats, designations and local conservation priorities can be gathered from websites such as Defra’s Magic Map, The LandApp and Natural England’s information on National Character Areas. All this can help you to select the best location. Many county councils are now preparing their first Local Nature Recovery Strategies which will map biodiversity priority areas — you may want to feed into the consultation process.
What is the demand for Units? Before spending too much time and money on surveys, consider who the potential buyers might be. What development is happening in the area? What types of habitat are likely to be damaged? And how many other habitat banks are coming forward to supply the market? You need to be sure that you will be able to sell enough BUs to make the project viable and fund the gap between delivery and sales. How many Biodiversity Units can you create? Every site is different, so you will need to work with a good ecologist to get a baseline survey of the site and draw up a management plan for the creation, restoration or enhancement of the habitat. The ecologist should be able to advise on what is best for nature, but the plan must also be practical and realistic for the farmer to follow. Will it create the types of habitats which developers will need? What will the ongoing site management cost over the next 30 years? Once the management plan is sketched out, the ecologist can do a further desktop Biodiversity Metric assessment to establish how many BUs the site should be able to deliver. The cost of this phase will depend on the size and complexity of the site, but will typically be several thousand pounds. Getting ready to sell Before you can sell any BUs you will need to have in place a binding legal agreement for the 30 year period (usually a s.106 agreement) and a formal Habitat Management and Monitoring Plan (HMMP). The site must be registered on the Biodiversity Gain Site Register, which costs £639 per site, plus £45 to allocate each
BU to a specific development. The local planning authority may also to want to see other supporting evidence, such as proof of ownership and evidence of how the funds will be managed over the 30 year period. Some local authorities are asking to be paid in advance for monitoring and verification. At this point costs will start to accumulate significantly, so many landowners are pausing and seeking option agreements with developers before committing further. Keep an eye on the big picture As with any form of diversification, it pays to keep an eye on the core business. How might a habitat bank affect the rest of the farm in terms of cashflow, labour requirements and management time? Tax is always an important consideration and while we have been told that land in habitat banks should be eligible for agricultural property relief from inheritance tax, there are many other uncertainties around the tax treatment of payments for BUs, including whether income will be “trading” or “investment” income and their VAT status. HMRC is looking at these and other issues at the moment. You should take specialist advice on your own tax position. Risk v reward The potential income from the sale of BUs could be very attractive, but there are many steps to be taken along the way and there are inevitably risks involved where a project will run for 30 years. It is important to take time to understand the requirements of both developers and local planning authorities, remembering that this is still a new subject for everyone.
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A s expected, there was a large their response to the consultation as well as providing some much-needed clarity on the IHT treatment on various different environmental schemes. Chris George, Tax Advisory Partner explores the announcements further in the article below: Environmental Land Management Schemes Within the Budget, the government announced that from 6 April 2025 the scope of Agricultural response from both the agriculture industry as well as professional advisers. In the Spring 2024 Budget, the Chancellor published Property Relief (APR) will be extended to include environmental land management scheme. In order to qualify the land in question must be under an environmental agreement with either the UK government, a public body, local authority or other approved body. This means that any land entered into any of the Sustainable Farming Incentive scheme should qualify for APR from next April. This has provided some welcome clarity to landowners looking at their ELMS options and means that they can fully embrace those schemes safe in the knowledge that their IHT situation is preserved. Ecosystems Service Schemes As well as providing guidance on the availability of IHT reliefs available on land used in ELMS schemes, there was also a Budget announcement regarding ecosystem service credits and their associated units.
Spring Budget Brings Some Welcome Clarity On Inheritance Tax
In recent years there has been significant growth in the popularity of Woodland Carbon, Biodiversity Net Gain and other similar schemes. However there has, and continues to be, substantial uncertainty regarding if land which has been utilised for the purpose of these schemes, qualifies as being used for agriculture or as a trade for tax purposes. While there hasn’t been the same level of clarity provided as with the ELMS arrangements, the government has announced plans to establish a joint working group between the treasury, HMRC and various industry representatives. The aim of this working group is to identify solutions that provide clarity on the tax treatment of both the production of ecosystem service credits/units as well as the sale of such units. It is therefore hoped that there will soon be some much needed guidance on this topic which helps assist landowners in making decisions on whether to commit land to these ecosystems services schemes. Restricting APR The Budget was however not all good news for the availability of APR. While there was progress made on clarification of the APR rules for land used for environmental purposes, there was also a tightening of the rules in another area. From 6 April 2024 APR relief (as well as woodlands relief) will be restricted to land and property within the UK. This means that property located in the European Economic Area, the Channel Islands and the Isle of Man will no longer qualify for APR. This is a significant change to the rules and has not been widely publicised. It will impact on many UK based landowners who have in recent years been attracted to investing in farmland in mainland Europe. As with any major business decision, any agricultural business who is looking to enter into any ELMS arrangement or one of the ecosystems service scheme should seek advice on the potential tax impact. Similarly, anyone with overseas land which will no longer qualify for APR should seek urgent professional advice. If you would like to discuss any of the schemes and reliefs mentioned in this article, please get in touch with Chris George or a member of our agricultural team by calling 0330 058 6559 or emailing hello@scruttonbland.co.uk
Since the introduction of the Environmental Land Management Schemes (ELMS), one of the main concerns has been the impact of ELMS schemes and other environmental land activities may have on the availability of Inheritance Tax (IHT) reliefs. In response to the growing concern, in 2023 the government announced a consultation snappily titled ‘Taxation of environmental land management and ecosystem service markets’.
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Common VAT Mistakes In The Agricultural Sector There are many potential pitfalls when it comes to VAT treatment for agricultural businesses, and many businesses can make mistakes without realising it. Lydia Brasted, Outsourcing Manager, shares the common mistakes made and how outsourced finance can help avoid this.
Private proportions One commonly made mistake in the
Private proportions also must be applied on electricity and oil bills. Usually, a 60/40 split with 60% being business usage is allowable for VAT purposes. In some cases, a reclaim of up to 75% can be allowed, but an argument would need to be made to support this. In the case of vehicles that are used for both business and private use the VAT fuel scale charge should be applied. Using correct VAT rates It’s important to use the correct VAT rate for sales raised as this reflects the amount repayable to HMRC and can lead to a nasty surprise down the line if not processed correctly.
Standard rated supplies are taxed at 20%. For agricultural businesses this will mostly relate to any contracting services provided. However, this will also apply to the sale of machinery. One anomaly is sale of wool, which whilst still an animal product is taxed at 20% as soon as it’s removed from the sheep. Reduced rated supplies are taxed at 5%. For example, sale of timber if sold for heating purposes. Zero-Rated supplies are taxed at 0%, but still allow VAT to be claimed on expenses in relation to this supply. For example, animal products, crops and livestock would all be zero rated on sale, VAT on fertiliser or chemicals used on the crops can be reclaimed. This means that many agricultural businesses are left in a net reclaim position at the end of each period.
Some income from farming is classed as outside of the scope. This applies to many subsidies and grants. How to avoid making mistakes Ensure that when invoices are posted into the accounting software that they are checked and that the correct VAT treatment is being used. It can be useful to check that the accounts package being used is up to the task. Review of any VAT returns is important to ensure no mistakes were made. Check through any items with high value or any items with irregular VAT treatment to ensure these have been processed correctly. There are many software options on the market which can streamline this process.
If in doubt, seek professional help. An accountant should be able to assist with the correct VAT treatment should businesses have any queries. How can outsourcing your finance help? Using a firm for outsourced finance such as bookkeeping gives businesses the benefit of passing all documentation over and allowing the firm to process correctly. Leveraging experience and expertise, firms can ensure that whatever has been sold or purchased is treated correctly for VAT purposes. Private proportions will be agreed and applied to all relevant invoices to ensure that treatment is always uniform and correct. A VAT specialist will also be able to guide you on what the correct private proportions will be. This can save businesses money on HMRC investigations and fines.
As agricultural businesses are more likely to be under claiming VAT rather than over-claiming it, outsourcing to experienced agricultural specialists and asking them to review your previous VAT returns can lead to corrections being made. As these will be picked up in the next VAT return, it can lead to a larger reclaim. Engaging with an agricultural specialist will also help ensure that income and expenditure are processed based on the most recent rules and regulation. If you would like to speak to one of our agricultural specialists about how we can help you and your farming enterprise, please get in touch with Lydia Brasted by calling 0330 058 6559 or emailinghello@scruttonbland.co.uk
agricultural sector is reclaiming VAT on private use items. This can lead to VAT being reclaimed in error and mistakes such as this can lead to costly HMRC inspections. Farmhouses, in particular, can cause confusion. Whilst they are integral to the function of the farm and allow farmers to be available on demand, the domestic element needs to be accounted for correctly. HMRC generally allow that 70% of the VAT on the farmhouse repair and maintenance can be reclaimed. However, this only applies in the circumstances below:
•
The structure is used as a working farmhouse which is used full-time
•
The structure is set up as a sole-trader or a partnership
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It’s Sumer Time... We are delighted to report that on 28 March 2024, Scrutton Bland became part of the Sumer Group, a national network of like-minded firms seeking to champion small and medium enterprises that are so important for the UK economy. Being part of Sumer will enable us to grow our business and brand across the East of England whilst keeping true to our core values of client service. It is an exciting development for our farm and estates team as we join the Group with other firms across the UK that have significant agricultural practices. Our new stable mates include EQ Accountants in Scotland, RMT in North East England, R T Marke & Co in Devon and Cornwall and Monahans in South West England. We are looking forward to collaborating with our new colleagues to share information and knowledge as the sector goes through a period of change and creation of new markets, such as the opportunity presented by natural capital.
If you would like more information about our news, please visit www.scruttonbland.co.uk or speak to your usual contact.
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Meet The Team We have a long-standing association with the agriculture sector and our specialists have a thorough understanding of the opportunities and challenges facing the industry.
We seek to build long-term, trusted relationships with our clients. It is important to us that we understand our clients’ business and personal aims and objectives, in order that we can provide bespoke and personal advice.
Get in touch with a member of the team to see how they can help you.
Nick Banks Business Advisory Partner nick.banks @scruttonbland.co.uk 01473 945762 James Tucker Business Advisory Partner james.tucker @scruttonbland.co.uk 01473 945761 Jason Fayers Managing Partner and Tax Partner jason.fayers @scruttonbland.co.uk 01473 945817 Graham Doubtfire Private Client Tax Partner graham.doubtfire @scruttonbland.co.uk 01206 417267 Simon Hurren Private Client Tax Partner simon.hurren @scruttonbland.co.uk 01473 945822
Jack Deal Business Advisory Partner jack.deal @scruttonbland.co.uk 01473 945786 Chris George Tax Advisory Partner chris.george @scruttonbland.co.uk 01473 945836 Ryan Pearcy SB Digital Associate Partner ryan.pearcy @scruttonbland.co.uk 01206 417218 Jo Gilbert Client Manager jo.gilbert @scruttonbland.co.uk 01473 945765 Lydia Brasted Outsourcing Manager lydia.brasted @scruttonbland.co.uk 01473 945765
Janice Bush Client Manager janice.bush @scruttonbland.co.uk 01206 417209 Sonja Lambourne Client Manager sonja.lambourne @scrutttonbland.co.uk 01473 945768 Emily Dunbar Client Manager emily.dunbar @scruttonbland.co.uk 01473 945770 Clare Thorpe Senior Client Support clare.thorpe @scruttonbland.co.uk 01473 945772 Paula Mason VAT Manager paula.mason @scruttonbland.co.uk 01473 945823
0330 058 6559 scruttonbland.co.uk
@scruttonbland
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