The future of farming – harnessing data for better control AGRI Business
scruttonbland.co.uk
Contents 3 Welcome to our Autumn 2021 edition of Agri Business
8 Subsidies, Schemes and Payments – what you need to know 10 Golf Balls 11 Save the Date 12 Meet the Team
4 The Evolution of Agricultural Software
6 Building a barn? 7 A delay to digital tax reporting for small businesses and the self-employed
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Welcome to our Autumn 2021 edition of Agri Business
The past few years have seen unprecedented changes within the agriculture sector, and events such as Brexit and the COVID pandemic have had a significant and lasting effect. A s professional advisers, our role is to assist clients in the present, whilst keeping an eye to the future. With that in mind, in this edition we examine how businesses can act now to protect their people and operations, streamline their processes and take advantages of the opportunities presented to them. Further to this, in this edition we look at tax opportunities for farmers and landowners around capital expenditure (see page 8), particularly for large scale projects such as storage facilities. We also outline the most recent announcements to the timetable for Making Tax Digital together with the news of a year’s delay to their planned change to the tax reporting ‘basis period’ which may – once introduced - present a number of challenges to businesses (see page 7).
Nick Banks
Tax remains a key issue for the sector, and reforms to the tax system have been predicted for some time, particularly in regard to the favourable reliefs which many farmers and landowners have been able to claim. The Government has taken advice in this area, namely through the Office of Tax Simplification (OTS), whose recommendations have been widely publicised and, as an industry we were braced for change in the 2020 Budget. Unsurprisingly, the attention for that Budget was moved to dealing with COVID, however pressure will undoubtedly once again mount in this area. As advisers we are preparing our clients the best we can, and we encourage our clients to talk to us about making use of tax allowances and timing capital expenditure so that Capital Allowances are utilised before it is too late.
Our agricultural insurance business work at Scrutton Bland continues to thrive and as factors such as climate change impact the farming year, many businesses now need to factor this in to their policy covers to ensure they are protected. On page 10 we look at the issue of the increasing frequency of severe hailstorms in this country, and the insurance that is available. In an increasingly online world, data has become a key commodity in managing agricultural businesses. The pandemic has accelerated this change, as businesses are looking to process data more quickly, automatically, and wherever possible take manual processes (such as keying in) out of their management operations. Scrutton Bland’s SBDigital service has helped many clients revolutionise their systems, and on page 4 our SB Digital Director Ryan Pearcy looks at the evolution of data management systems for agricultural businesses.
As we move towards the end of 2021, we turn an eye to our Farming Conference in January. Last year’s virtual event was a great success and we’ll be hoping for a similar take up this year. We are currently working on an impressive line-up of speakers so please watch this space. Finally, our team at Scrutton Bland continues to grow and we are delighted that Jack Deal joined us as a Director in our Business Advisory team in August. Jack specialises in agricultural businesses, working closely with farmers and landowners. Jack’s advisory skills complement our existing team, and we are excited to have him on board. We hope you enjoy this edition of Agri Business, and if you want to discuss any of the points raised, please get in touch your usual Scrutton Bland contact.
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The Evolution of Agricultural Software The agricultural software landscape has changed and developed dramatically over recent years. What was once seen as an industry that relied heavily on paper records and legacy software, it is now rapidly evolving to position itself at the forefront of cloud technology and the Internet of Things (IoT). That said, being a pioneer within new technology brings risks as well as benefits, and it is important to understand the balance of those before jumping in headfirst. But before we dive into the realms of the newest software and all that it can bring, it is worth considering how we got here. Most businesses, and possibly yours, will be somewhere on this path. In the beginning there was paper. Records were kept manually in cashbooks and ledgers. Maintaining these was time-intensive, riddled with errors and took forever for you and your advisers to compile into anything useable. Making Tax Digital for VAT removed this for all but the smallest businesses and Making Tax Digital for Income Tax will remove this for the rest, so let’s move on.
Second was desktop. Software that sits on your own machine. Microsoft Excel was the pioneer here. Taking the cashbooks and ledgers and replicating them, but this time on a computer. Data entry was painful but errors were reduced. This then led to the creation of generic accounting software, such as Sage50, and agricultural specific software such as Farmplan and Landmark. The issues with data entry weren’t resolved, but once information was located in the software it became far more useful for your business, giving you insights into how you were performing without the need for specialists. This type of software, and what follows, is most likely Making Tax Digital compliant (although we advise checking).
Third was server. With the growing capabilities of software, and bigger teams using it, the data needed to be in a centralised place. An in-house server allowed for this, connecting multiple computers to the same information, allowing multiple people to work on it at the same time. With remote desktop functionality you could even access it remotely via the internet. You still had control of your data, as you control the server, but this also meant you also housed all the risk. You needed to ensure compliance, maintain your data and manage risk. Updates, backups, Firewalls, anti-virus and other technical jargon became more and more important to ensure you could manage your finances effectively. Fourth was hosted. As the internet scaled upwards and internet speeds increased, there was the potential to do a lot more remotely. This offered the chance to outsource some of this risk management. Pushing what data you had on your server into the cloud meant you could rely on others to manage the risk. As it would be centralised there should be greater investment and with it, greater protection. Far greater than you could afford for your business. All good news right? Well the flipside is that now lots of people’s data is located in one place, making it a more appealing target for hackers.
At this point it is prudent to pause and reflect. We have talked about the different types of software operation, but not software names. At the desktop stage we introduced Sage50, Farmplan and Landmark as the software for this area. Well these still apply for server and hosted management systems. What could be done on a desktop, with some tweaking, could be scaled up to work centrally. You would still need a base programme on your desktop machine, but the data could be accessed somewhere else via that software. In essence it is just stored in a database and that database could be anywhere. We appreciate we are simplifying decades of development work and evolution of technology, but trust us - there is a point. Next came cloud. Now first we need to define this, as in this context we mean “native” cloud. Programmes such as Sage50 Cloud are hosted systems where the data is stored in the cloud, but the programme runs on your machine. Native cloud systems, such as Xero, allow you access via a browser or app and all the processing is done offsite. This technology is built completely differently and cannot operate in a hosted, server or desktop environment. But as it has been created to operate in a cloud setting there are some great advantages (as well as disadvantages) that this brings. Some of these we have delved into on the following page:
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Accessibility – Anyone with a phone or computer can access cloud software if you have granted them permission. Onboarding and involving employees, subcontractors and collaborators is far easier. This does mean that user management becomes key and regular reviews are important. Data management – Your data is duplicated between multiple sites, meaning that if one site was ever affected your data would still be accessible. Backups are not required to ensure you can get to your data. Data security – The best cloud systems build their security in layers, making external penetration very difficult. The easiest way in is therefore pretending to be a user and so two-step authentication becomes paramount. This can vary across cloud platforms so we advise checking before adopting. Version control – There is only ever the current version. Updates are never needed, compliance is ensured and you are always working on the newest system. The downside is you cannot roll back to a previous version if a disgruntled employee purposefully wrecks your data and there is the odd downtime when a new release goes awry. That said, these are less likely than data loss if on your premises. Connectivity – Modern cloud systems are built with APIs (Application Programming Interfaces) that allow them to plug into each other. This means you can pick best of breed programmes and plug them together, benefiting from the automation gains of data flowing from one to another. Getting the right connection is important as some programmes say they connect when they don’t in a reliable way.
Smart data – Having the data in cloud systems with APIs allows you access to it. By bringing this data together in smart ways you can gain insights into your business that help drive business decisions. New skillsets are needed to understand how to access, build and utilise this data to make it work for you, so ensuring you have the right advisers who can help you do this is more important than ever before. IoT – As the hardware you use becomes connected to the internet, such as your machinery, this information can be used to drive the business systems, removing the need to update them manually. This is still early on in its evolution, but the agricultural sector is taking a lead here and so aligning the right software and hardware purchases is now an important strategy in your business planning.
The world of software is constantly evolving and your business can gain significantly by using it in the right way. Native cloud software can enhance your operations through flexibility, automation and better business insights, but it is crucial to only adopt the right technology that works for you. Talking to an adviser in our SBDigital team is an easy first step and will help you understand what may be appropriate for your agriculture business. Take a look at our subsequent articles to find out more about the different areas of focus for landed estates, including an assessment of different tools and operations and how these can be brought together to be far more than the sum of their parts.
Function
Desktop/Server
Hosted
Cloud
Data stored
Local
Cloud
Cloud
Backups
Needed
Outsourced
Not needed
Remote work
Difficult
Moderate
Easy
Security
In house
Hybrid
Outsourced
Updates needed
Yes
Yes
No
Connectivity
Very rare
Rare
Likely
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Building a barn? Make sure you’re maximising your tax reliefs for farm storage facilities Historically, farmers and landowners have been unable to claim significant tax reliefs when constructing new storage facilities. Jack Deal and Chris George consider how this is changing with the introduction of the Super Deduction, and the potential implications of the recent decision in the First Tier Tribunal (FTT) in JRO Griffiths Limited vs HMRC.
I n the March 2021 Budget, the Chancellor announced the Super Deduction: a new tax relief available only for companies. The Super Deduction comprises a 130% first-year capital allowance for qualifying plant and machinery assets, alongside a 50% first-year allowance for qualifying special rate assets. The Super Deduction may apply to expenditure incurred between 1 April 2021 and 31 March 2023 and, unlike the Annual Investment Allowance, there is no cap on the amount of Super Deduction a company can claim. There are, as you might expect, a number of conditions which need to be met, and which require specialist advice – see our article earlier this year which provides more detail. In the recent case JRO Griffiths Limited vs HMRC, the FTT agreed with the taxpayer that their new storage facility qualified as plant for capital allowances. The FTT concluded that it was satisfied that the functions of the storage facility were such that it formed an integral part of how the taxpayer carried out their qualifying activity, rather than simply being a setting for their trade. Whilst HMRC have a right to appeal this decision, it is encouraging to see the FTT decide in the taxpayer’s favour in this case, and also to give guidance within their comments as to what constitutes temporary storage for capital allowances purposes.
How does this affect farmers and landowners?
Farmers and landowners should consider the JRO case along with the Super Deduction in planning future storage projects, as significant tax savings could be achieved. For example, a company planning on spending £500k on a new storage facility, which qualifies as plant for capital allowances and is eligible for the Super Deduction, could claim tax relief of £650,000. At the current corporation tax rate of 19%, this could lead to a cash saving of £123,500, bringing the cash cost of the project to £376,500. Farmers and landowners currently have a good opportunity to both maximise the functionality of their storage facilities, and to utilise available tax reliefs to bring down the cash cost of the project. Professional advice should be taken around the timing of storage projects and the specification of their build to maximise their capital allowances claim. For more advice on maximising agricultural tax reliefs for your farm business please get in touch with Jack Deal or Chris George at hello@scruttonbland.co.uk or call 0330 058 6559.
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A delay to digital tax reporting for small businesses and the self-employed – and to basis period reform
Making Tax Digital (MTD) for Income Tax has been delayed for a year, alongside the proposed changes to the alignment of business taxation dates to the Treasury’s accounting year.
Who will it affect?
Why has MTD been delayed?
Basis period reform also delayed
The delay will mean that over 4 million businesses, self-employed workers and landlords with incomes of more than £10,000 a year will see a postponement of their MTD start date from April 2023 until April 2024. At this point they will need to keep accounting records digitally and to file quarterly updates to HM Revenue & Customs instead of a single update annually. MTD for general partnerships has been delayed further until April 2025, with no date given for other types of partnerships such as LLPs.
Digitising the tax system through Making Tax Digital (MTD) has been widely described as the biggest change to taxation in a quarter of a century, but the difficulties faced by businesses as a result of the COVID-19 pandemic have created additional challenges across the board. Lucy Frazer, financial secretary to the Treasury said: “The government recognises the challenges faced by many businesses and their representatives as the country emerges from the pandemic over the last year.” Graham Doubtfire, tax partner at Scrutton Bland said: “The delay will provide breathing space for small businesses and self-employed individuals with an income of over £10,000, many of whom have expressed concern at the additional work this administrative change will bring. We always recommend talking to one of our tax advisers who can give professional guidance and practical help on what needs to be done to become MTD compliant.”
The Treasury has also announced a year’s delay to their planned change to the tax reporting ‘basis period’. This reform would have required self-employed individuals and members of partnerships to align their accounting dates with the April date used by the Treasury and many others. The proposed date change to the basis period would have meant in many cases income tax needing to be paid earlier than the current system, and despite the potential funds the government might have raised, it has decided to postpone the move until April 2023. Graham Doubtfire further commented: “The postponement to the change in the basis period will undoubtedly be welcomed by many, but is still a change that could happen, and needs to be built into business plans. The surprising aspect is that despite MTD for Income Tax being deferred until 2024 the plans to change the basis period appear to remain for 2023, which is likely to be the most disruptive aspect for business owners who may well have an accounting period that does not coincide with the tax year end. Our tax team can help with forecasting for these additional tax liabilities and suggest planning opportunities that will assist in lowering the amount of tax due. This can include things like making use of multiple tax allowances and adjusting the timing of capital expenditure so that Capital Allowances are utilised in the right accounting period.”
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Subsidies, Schemes and Payments – what you need to know
The Government’s plans to phase out direct payments, via the Basic Payment Scheme (BPS), have been with us for a year now. In that time, new schemes have been announced, pilots have been launched, and many farmers and landowners have been left wondering what their businesses will look like without direct payments.
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F rom this year progressive reductions will be applied to direct payments, with final payments being made in 2027. We know the reduction rates for 2021 to 2024, by which point all recipients will see their payments reduced by at least 50% of current levels. The consultation on the Lump Sum Exit scheme closed on 11 August 2021. We are expecting farmers wishing to exit the industry to be offered lump sum payments, in place of future direct payments, in 2022. Three new Environmental Land Management schemes have been launched. Pilots of the Sustainable Farming Incentive have been running through 2021 and the scheme is expected to launch in 2022. Pilots of both the Local Nature Recovery and Landscape Recovery schemes will launch in 2022 with the full schemes expected to launch in 2023 and 2024 respectively. The Countryside Stewardship scheme will continue to be available for existing and new applicants until 2024, with the last new applications being accepted in 2023. Importantly, it will not be possible to be paid for the same environmental initiative twice, by entering it into more than one scheme. These schemes are all different but centre around a common theme: ensuring that farmers and landowners are rewarded for taking actions which deliver public goods and improve the environment. In addition to these schemes the Government has launched the Future Farm Resilience Fund (FFRF). Participants in the FFRF will receive free advice from approved providers, around the phase out of direct payments and what it might mean for their businesses. This is a clear indicator from the Government that they realise that the phase out of direct payments will hit agricultural businesses hard, and many will need to take difficult decisions about the future of their enterprises. Whilst these various schemes are not expected to cover the gap left by direct payments, farming businesses should certainly be exploring their viability and taking advice around which schemes might work well for them.
Update your business plan
We are encouraging all clients to update and develop their business plans in order to assess how well positioned their business is to cope with the future loss of direct payments. Profitability is one key measure, however it will be even more important to evaluate whether the business will be able to generate the cash required to fund capital expenses, debt repayments, partners’ drawings and private expenses, as well as tax liabilities. Businesses with bank debt will also have to satisfy their lenders of their business’ viability. Many will have financial covenants in place, typically around debt serviceability and cash generation, which banks use to assess the risk associated with the debt. It is important to engage with your lenders now and pre-empt any future issues around meeting covenants. Banks do not like to find out that covenants have been breached after the fact, and early conversations around this, alongside a strong business plan, can prevent relationships with the bank breaking down. Agricultural businesses have had to embrace many changes in recent years, and it is undoubtedly the case that this will continue for the foreseeable future. Whilst dealing with change presents challenges, it can also create opportunities to think differently. Could you implement new accounting and management software to save you time and money? Could your business structure be simplified? Could you create new, tax efficient structures? Our advisers continue to engage with our clients to help them understand these government initiatives and to provide advice on r the biggest change in agricultural funding in a generation. We look forward to seeing farming businesses succeed and thrive in the coming years.
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Golf Balls Do you consider golf balls to be a risk to your arable crops? Ask any farmer that question and it’s fairly certain the answer will be “er, no!”. And rightly so. However, rephrase the question slightly and you might hear another answer.
Do you consider hailstones as big as golf balls to be a risk to your arable crops? And that is, quite literally, a different ball game.
Powerful hailstorms are a phenomenon which appear to be becoming more frequent, with two widely reported storms hitting Essex and Cambridgeshire in late July this year causing significant damage. These storms make the news when they damage a car or conservatory but go largely unreported when the only areas affected are fields laden with crops. Yet they are commonplace.
Our changing climate makes it ever harder to
Mitigation comes in the form of crop varieties which offer an increased resistance to these storms and can definitely help. Failing that, there is insurance to pick up the pieces. The increasing volume of oilseed rape grown in recent years has led to a revival in the uptake of hail insurance, with many farm insurers offering cover as an add-on to an existing farm combined policy.
To get a quotation you will typically be asked for the crop types, areas grown and expected yields. Geography also plays a part as some areas of the country are rated as being at higher risk due to past events. But it is one of the simpler insurances to obtain quotations for and should become part of the annual review of insurance requirements going forwards. That way the only golf ball you will have to worry will be the one that would not go in the hole on the 18th green!
predict when these weather events will happen, with the only certainty being that hailstorms are not good for crops at any point! Recently sown crops are tender and can be decimated, while the other end of the scale hail can leave whole swathes of potential yield lying on the ground and unable to be harvested.
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Save the Date Digital Farming Summit 2022
Following the success of our Farming Digital Summit in January 2021 we are delighted to announce that we’ll be holding another event in January 2022. We’ll be hosting the event on the morning of Wednesday 19 January via Zoom and we’d encourage you to save the date! At a time of sector change and trading challenges, the theme of our 2022 event will be Farming Resilience.
The aim of the summit is to provide insight to our agricultural community about some of the most important topics currently faced by the sector, and to understand how their businesses are performing at the moment, given the national and local issues we all face. We will also be looking ahead to the future about how farming businesses can succeed by anticipating some of the forthcoming legislation and regulations, and how Agri business owners and managers can adapt to the demands of the market to get their enterprise in better shape.
The event is free and open to all members of the agricultural community including landowners, farmers, farm secretaries, estate managers and professionals working in the sector.
Full details of our speaker programme will be announced in the coming weeks.
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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 and Cloud Accounting Partner nick.banks @scruttonbland.co.uk 01473 945762 James Tucker Business Advisory and Cloud Accounting 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 Gavin Birchall Tax Partner gavin.birchall @scruttonbland.co.uk 01206 417277
Ed Nottingham Insurance Director edward.nottingham @scruttonbland.co.uk 01379 773532
Janice Bush Business Advisory Manager janice.bush @scruttonbland.co.uk 01206 417209
Jack Deal Business Advisory Director jack.deal @scruttonbland.co.uk 01473 945786
Jenny Binder Business Advisory Assistant Manager jennifer.binder @scruttonbland.co.uk 01473 945767 Sonja Lambourne Business Advisory Assistant Manager sonja.lambourne @scrutttonblnd.co.uk 01473 945768 David Taylor Commercial Account Executive david.taylor @scruttonbland.co.uk 01473 945748
Chris George Tax Advisory Director chris.george @scruttonbland.co.uk 01473 945836
Jo Gilbert Business Advisory Manager jo.gilbert @scruttonbland.co.uk 01473 945765
0330 058 6559 scruttonbland.co.uk
@scruttonbland
Scrutton Bland Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Our FCA registered number is 828934. 0693/10/2021/MKTG
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