FAQs.

The Basic Payment Scheme has provided valuable income for farming business, particularly those in the arable sector. The Government has confirmed no changes will be made for 2019 or 2020 and has announced deductions for 2021. The deductions are at rates between 5% and 25% and are staged as with income tax. Farmers can plan for this and should build the deductions into their cash flow forecasts.

Post 2021, deductions will be dependent on Spending Reviews and requirements under the new Environmental Land Management Scheme (ELMS); the Basic Payment Scheme’s replacement once we’re outside of the EU. ELMS may prove a valuable income stream for some farms, particularly those with a heavy focus on the environment. That said, the general consensus is that support will fall and so it is important to take a step back to review the profitability of your business without any support to see if you can make a viable profit.

If you can’t make a profit, you will need to consider what can be done to make it viable. This could involve changing cropping plans for poor performing fields or taking them out of cropping altogether and into the new ELMS scheme, partnering up with others to ensure machinery is used to full capacity or diversifying into non-farming activities or farming activities less dependent on subsidies, e.g. intensive livestock.

Being less dependent on the Basic Payment Scheme may provide more opportunities for increasing income from the sale of crops. Land may be farmed without abiding by regulations which are set centrally by the EU for a variety of countries with very different farming environments. This may encourage more efficient farming and an increase in yields.

The Agricultural Bill explained that the Basic Payment will be de-linked from the requirement to occupy land in the future. This along with the option for a lump-sum payment may provide financing options for those who are already looking to retire from the business. The Government will release a consultation on how this will work later this year which should provide more clarity. We particularly have concerns with how a lump-sum payment would be assessed for tax purposes which could give rise to tax liabilities up to 47% of the payment.

You should prepare a will to set out who you would like to benefit from your assets (including your farm) on your death.  It is important to think about who you would like to benefit from your assets and what the tax implications might be. Inheritance Tax needs to be considered on death, where a liability arises this can be detrimental to businesses, particularly farms with high capital asset values where there may not be cash available to fund the liability.  To help mitigate the inheritance tax due there are two important Inheritance Tax reliefs which can apply to farms where certain conditions are met.

It is important to review the whole farming enterprise and your personal financial position to identify where Inheritance Tax reliefs are available. Agricultural Property Relief can provide relief against Inheritance Tax at 50% or 100% of the agricultural value of an asset. Where farms are heavily diversified or have non-agricultural value, e.g. hope value for land development, Business Property Relief can provide relief at either 50% or 100% of the value of an asset.

Once your current position has been established consideration can be given over whether you can improve the inheritance tax reliefs available to you and if you should  consider planning giving assets away in your lifetime.

Few people can talk about their deaths comfortably with their family and loved-ones but it is essential to have open and honest discussions so that everyone is aware of your wishes. This is particularly important where you have multiple children, some that are involved in the farming business and some that aren’t.

The rules surrounding Inheritance Tax and the reliefs available are complex and so it is.

There is a special exemption where a “subsidiary dwelling “ is purchased with a house. As long as the smaller dwelling is purchased in the same transaction as the main dwelling, it is valued at less than one third of the total purchase price and it is within the grounds of the main house then you are not treated as buying two dwellings. However, there may still be an opportunity to benefit from multiple dwellings relief, which can lower the overall SDLT bill.

The higher rates will apply as following the purchase you will own an additional residential property and is this is not replacing your main residence.  Unfortunately, a refund of the higher rates cannot be claimed once the properties have been merged as refunds are only available where a previous main residence has been disposed of.

The answer here depends on whether you are a married/in a civil partnership or are unmarried. A husband and wife each own a residential property (with neither having any interest in the other’s property) but both live in the property owned by, say, the husband, with the property owned by the wife being rented out. If they sell their main residence and jointly buy a new one the higher rates will not apply to the joint purchase.  As they are married and have both lived in the property owned by the husband as their main residence they will both be treated as replacing their main residence, even though the wife retains the rental property. An unmarried couple (A and B) each own a residential property and both live in the property owned by A, with B’s property being rented out.  If the main residence is sold and they jointly purchase a new one, which will be their new main residence, the higher rates will apply to the joint purchase of a new main residence.  As they are not married (or in a civil partnership) B will not be treated as replacing his main residence as, even though he has been living in the property owned by A, he has no interest in the property A is selling.

A replacement of a main residence can be achieved by making a gift of the former main residence, as this still counts as a disposal. However, a gift to a spouse would not avoid the surcharge as neither the purchaser or their spouse can retain an interest in the former main residence in order to be outside the surcharge. Gifts should be considered carefully, as they could create other tax liabilities, such as capital gains tax on disposals, inheritance tax and income tax on future rental income.

When looking at the 3% surcharge you must consider any residential properties owned, regardless of where they are located. However, in some case property owned overseas may not cause the surcharge to be payable on a UK purchase, perhaps because the overseas property is valued at less than £40,000, or the beneficial ownership sits within another party. There are many types of ownership, such as certain usufruct rights, which mean that the legal owner would not be treated as owning a major interest in the property, so it would not count for the purposes of the 3% surcharge. If you have an overseas property with unusual rights in place it is worth seeking further advice.

Historically, when considering the incorporation of an existing sole trading activity or partnership into a limited company, a big benefit to doing this was the ability to ‘realise’ the goodwill built up in the existing business, and access this value at a low tax rate (if Entrepreneurs’ Relief applied).

Since 3 December 2014 the rules on incorporation and goodwill have gone through significant changes, impacting on both the tax reliefs available on incorporation, and the tax deductibility of the amortisation of any goodwill acquired by the new business.

It is therefore important that when looking at incorporation, the tax position is considered so that there are no unexpected surprises.

If you are an employee/director in a company or a salaried partner in a partnership (or LLP) you will be taxed, broadly, on the salary and any benefits paid to you during the tax year.

Up to 6 April 2023, partners in a partnership and members in an LLP were taxed based on their tax adjusted profit shares for the account year which ended in a particular tax year. For example the profit from the accounts ending 30 April 2022 would be taxable in 2022/23. There were special rules if someone joined or left a partnership in a tax year.

However, partners and members could see a major change to their tax from 6 April 2023.

For businesses with accounting years ending between 31 March and 5 April there will be no change to the way partners and members are taxed.

But if your business uses another year end date for its accounts the “Basis Period Reform” rules could have a significant impact on you; both in the technical complexity of calculating your taxable profit shares allocated to a tax year, and also in accelerating when the tax on your profit share is due to HM Revenue & Customs.

From 6 April 2024 onwards you will be taxed based on profits arising solely in the tax year, regardless of when your accounting year end falls. Where the accounting year isn’t in line with the tax year (i.e. accounts year end isn’t between 31 March and 5 April), you will need to apportion the tax adjusted profits from two accounting years to arrive at your taxable profits for 2024/25.

In 2023/24 there is a “transitional year” to prepare for this change. You will be taxed on your profit share from the accounting year that ends in the year to 5 April 2024. You will also be taxed on your “transitional profits”.

Transitional profits cover the period from your year end to 5 April 2024 less any overlap profits available for relief. Transitional profits can be spread over up to five years and careful planning will be needed to make the most of this aspect to mitigate the impact of accelerated tax payments on your cashflow.

Please speak to us if you need assistance understanding your tax position and we will be pleased to help.

This is a complex question with a number of different options available including

• A Partnership
• A Limited Liability Partnership (LLP)
• A Limited company
• Or a hybrid mixture of the above entities.

New structures are developing all the time with employee ownership and external investors becoming increasingly popular. The right structure for your business will be dependent on a number of factors including size of the business, restrictions placed by your professional body, attitude to risk, the stage the business is at in its life cycle and the number, age and income requirements of the owners. Whilst tax shouldn’t be the main driver in any business decision the tax implications are extensive and a crucial part of any decision making process. We work with our clients to develop a bespoke solution for every business which avoids inflexible structures and succession challenges whilst maximising tax saving opportunities.

It’s natural to want to know how your firm is performing compared to your competitors. The use of hybrid structures or operating vehicles which do not have to publish their results can make it difficult to get an accurate picture of how your competitors are doing. PEM, as part of the Kreston network, participates in an annual benchmarking exercise giving you the ability to assess your firm’s performance against similar size firms both nationally and locally. The benchmarking survey provides comparatives for lots of criteria including fees (both by Partner and by fee earner), salary and admin costs and Profit per Equity Partner.

Firms are required to obtain an accountants report for that accounting period if the firm has at any time during the accounting period, held or received client money, or operated a joint account or a client’s own account as signatory. The accountant’s report must be completed within six months of the end of the accounting period and if it is qualified to show a failure to comply with the accounting rules it must be submitted to the SRA. There are a couple of exemptions from obtaining an accountants report if firstly, all of the client money held or received during the accounting period was Legal Aid monies or secondly, the total of all client accounts held or operated by the firm did not excess an average of £10,000 or a maximum of £250,000 during the accounting period in question. If you have any queries about whether you require an accountants report we would be happy to discuss your requirements.