Changing Landscape: Taking a fresh look at diversification

GSC GRAYS Working together today to secure your tomorrow

FEBRUARY 2021

T AKIN G A F RE SH L O O K A T DIVERSI F I CAT IO N As part of our Changing Landscape campaign, Rural Associate Director, Georgina Watson offers insight and practical information on how farms can generate additional income from diversification.

CHANGING LANDSCAPE

In reaction to the f irst major r e s et of a gricultur al policy sin ce 1947, a far ming bu sin es s ’s ability to ad apt an d diver s ify has beco me a key topic.

BPS payments will have reduced by at least 50% for most claimants by 2024; a move that will challenge the whole farming industry to adapt and change, and do so quickly.

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Through our Changing Landscape campaign we are addressing the challenges and opportunities created by this step change.

Diversification is not a new idea, our survey of farm businesses in 2020 revealed that 72% had already diversified, but it is an area of opportunity that continues to grow and evolve, and we know that many of you are considering new ventures. At GSC Grays we believe that these opportunities should not be thought of simply as diversification, but should be considered as new enterprises, or as complementary additions to your existing business.

Amongst the respondents to our survey who hadn’t diversified, 63% were interested in doing so, and of those who had, 70% were looking for further opportunities.

The opportunities available to farming businesses are far reaching and diversifying does not necessarily mean you have to look outside of farming or the rural environment to generate additional income. When we are helping clients to explore different options, we tend to find that it is the people involved, the assets available, finance or their location which guides the decision making.

Though it is useful to learn from the ideas and experiences of others, don’t be too swayed by the success stories that abound in the industry press. Try to keep an open mind about the type of enterprise that would suit your farm and consider where your own skills and interests lie.

Even for those who have already taken the plunge, treading water is not an option. The COVID pandemic has revealed how quickly demand for leisure and tourism ventures, or direct produce sales, can rise and fall, and businesses must continually adapt to changes in the market.

In this booklet and in the accompanying case studies and podcast, we will guide you through some of the key questions and issues that you should consider as you start to turn your ideas into reality.

GEORGINA WATSON MRICS FAAV RURAL ASSOCIATE DIRECTOR

07930 279764 hgw@gscgrays.co.uk

Diversifying does not mean you have to look outside of farming or the rural environment to generate additional income.

TAKING A FRESH LOOK AT DIVERSIFICATION

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WHAT TO CONSIDER‌ STARTING POINT: IDEA OR NO IDEA You may have a desire or an idea already to diversify, perhaps you want to follow a longstanding interest, or you have identified a niche product or gap in the market. Or, you may have no idea what to do, but would like to explore some different options for financial reasons or as part of succession planning.

B&B,

Self-catering

accommodation,

The advantages of a diversification project may include spreading financial risk, cross selling

opportunities,

business

growth,

adding value to a product or asset, utilising resources, providing business opportunities or employment to family members and the local community or providing income generation

throughout

the

year.

Work

out what you want to achieve from the new enterprise and select diversification opportunities that match your long-term

Diversification can take many forms, from

objectives for your business, and your

adding new farming enterprises, new crops

preferred lifestyle.

or breeds of livestock, focusing on adding value to a raw product, such as artisan cheese and ice cream, sales direct to the consumer or Pick Your Own, through to conservation projects that may also attract the public for education or recreation.

As well as the advantages, the potential pit falls might be a key part of your decisionmaking process. Set up costs may pose financial risk to your existing business, particularly in the early stages. Potential conflicts with the local community or at

For those who are not averse to dealing with

home, and increased workload are also some

the public; retail, leisure, and hospitality

of the more difficult hurdles to overcome.

provide a wealth of options, from cafes, shops, camping, glamping, sport-based activities,

F O R M A N Y FA R M B U S I N E S S E S , A LT E R N AT I V E S O U R C E S O F I N C O M E W I L L B E I M P E R AT I V E TO B U S I N E S S S U R V I VA L , P RO G R E S S I O N , A N D E X PA N S I O N .

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or

equestrian activities.

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RESOURCES What resources do you have available to you currently? You are likely to have many types of assets on farm, some more obvious than others. You may have land, buildings, livestock, arable produce, or machinery, but don’t forget to also consider natural capital and goods, such as woodland or freshwater, IT, infrastructure, your location and (perhaps the most important of all) human resources.

Starting

a

new

business

or

The appetite to diversify and potential areas of interest were one of the key topics covered in our 2020 survey of farm businesses, with converting existing buildings being the most popular option for those who responded, and rather surprisingly, farm shops/direct sales being the least popular.

expanding

enterprises is not just for owner occupiers, tenants may have the opportunity too, although it is advisable to have early discussions with your landlord if it will affect their land or property, or you may breach the

DIVERSIFICATION IN ORDER OF POPULARITY 1. CONVERSION OF FARM BUILDINGS INTO NON-AGRICULTURAL USE

terms of your tenancy.

37%

Another factor to consider is how would the loss or change of use of an asset affect

2. RENEWABLES

36%

the existing business? What time do you have available to create a project and see it through to completion and then if necessary, manage it on a daily basis?

3. LEISURE/TOURISM

24%

UNDERSTAND YOUR EXISTING BUSINESS

4. PLANTING LESS PRODUCTIVE AREAS WITH TREES

Good businesses do not just have accounts, they use them. Analyse and understand where the pressure points are, what makes

19% 5. INTENSIVE AGRICULTURE ENTERPRISES (PIGS/POULTRY)

15%

money, what is losing money. If you take out the Basic Payment, what is your position.

6. FARM SHOP/DIRECT SALES

Who is reliant on the business for income

11%

now and possibly in the future?

Consider what pressures there are likely

TAKING A FRESH LOOK AT DIVERSIFICATION

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to be in the future with regards to family

planning. An honest analysis of your accounts

members. It is vital that an honest and open

should aid you in making your decision and be

conversation is had with all family members

part of any business plan, whether or not you

– do not just assume you know what their

require funding from the bank.

interests are, or what skills they have. They may not wish to follow in your footsteps or agree with your ideas; the decisions you make could have a big impact on their life and wellbeing. This is especially important when you farm in partnership with others.

It should be borne in mind that not all diversification projects will be instant money makers. It will take time to develop a product, or market a venue or holiday letting. It would be wrong to assume that any diversification project will initially replace all income

If you are struggling to be motivated by a

forgone under the Basic Payment Scheme.

diversification project or feel you do not have

That said, we have the transition period of

the time and expertise to undertake one,

7 years to ensure there are no immediate

what about other family members? Taking

shocks and time to clearly plan, invest and

on a new enterprise could be a challenge

develop a project.

for them, providing responsibility whilst enabling progression or paving the way for a new business that could eventually be part of a plan for succession.

For many smaller projects, you may not be able to draw an income straight away to allow for reinvestment to improve and grow.

If you, or someone within the family or

FINANCE – WHERE MIGHT THE MONEY COME FROM?

business is wishing to pursue a project,

Financing some projects can put strain on

the risk to the existing business. Examples

the existing business, at least whilst the

include a tenancy over an area of land or a

project is in the early stages. It may be that

building, creating a new partnership, gifting

some projects are just too costly to take

land, or providing a lump sum either outright

on yourself, such as the redevelopment of

or acting as a banker (with interest).

a traditional barn, in which case you might

have even seen examples of crowd funding

consider selling the asset with the benefit of

through social media.

OUR 2020 SURVEY REVEALED THAT YOUNG FARMERS ARE MORE LIKELY TO BE INTERESTED IN PURSUING DIVERSIFIED INCOME STREAMS, WITH 66.67% OF RESPONDENTS AGED 20-30 SAYING THAT THEY WOULD LIKE TO DIVERSIFY IF THEY HAD NOT ALREADY DONE SO, COMPARED TO 36.36% OF THE WHOLE SAMPLE. 4

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there are options to consider to mitigate

66.67% 20-30 YEAR OLDS

36.36% WHOLE SAMPLE

We

IT WOULD BE WRONG TO A S S U M E T H AT A N Y D I V E R S I F I C AT I O N P R O J E C T W I L L I N I T I A L LY REPLACE ALL INCOME FORGONE UNDER THE B A S I C PAY M E N T S C H E M E .

TAKING A FRESH LOOK AT DIVERSIFICATION

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PLANNING WILL BE REQUIRED FOR MANY PROJECTS, EITHER A F U L L A P P L I C AT I O N O R THROUGH PERMITTED DEVELOPMENT RIGHTS.

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Another source of income to think about

no longer qualify for some inheritance tax

is grant funding. Most grants will not cover

reliefs, and business rates may be payable

whole project costs but may apply to parts

(small business rate relief may apply).

of a project such as landscaping, repairs to listed or protected buildings, educational

OTHER CONSIDERATIONS INCLUDE:

depend on what project you are undertaking.

• Is the property subject to any designations? Site of Special Scientific Interest (SSSI), Area of Outstanding Natural Beauty (AONB), Conservation Areas, National Parks, Listed Buildings) – permitted development is unlikely to be available in these circumstances.

For some, it may require no change and you

• Local and National Planning Policy

can continue to trade under the existing

• Timing – usually 8 weeks for a standard full planning application following validation, but this can be longer where there are contentious issues, or it is deemed to be a major application which can then take a minimum of 13 weeks.

facilities, or to support young entrepreneurs.

BUSINESS STRUCTURE The type of trading structure you choose will

farming business, for others, a new business structure may be required. Where there is to be a succession or where you are bringing in a partner, a new trading structure may be required. Limited liability partnerships or a Company may be best suited. This will need to be reviewed carefully and discussed with your accountant to ensure all involved understand what role and responsibilities they have, what tax liabilities there may be and how assets which are included are owned and treated.

• Costs associated with obtaining planning consent. You will have to pay an application fee (where there is no guarantee of approval), architect fees, highways surveys and mapping, ecology reports, flooding reports and other professional fees associated with preparing an application and monitoring through to a decision.

Planning can be a frustrating process and can cause potential issues with neighbours or the

PLANNING

local community. If you are uncertain about

Planning will be required for many projects,

the type of planning you may require or the

either a full application or through permitted

project itself, seeking pre planning advice is

development rights. It should be noted that

advisable.

a change of use of an asset could impact on more than just its potential value, it could trigger business rates, council tax or impact

Overleaf is an overview of when permitted development rights may be available, but in all cases the legislation and full rules

on inheritance planning.

should be reviewed against any project being A simple example would be a DIY Livery

considered.

where the land and buildings used (albeit as part of the existing farm and business) would TAKING A FRESH LOOK AT DIVERSIFICATION

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KNOW YOUR PLANNING OP TIONS

notification period is a minimum of 28 days.

There are restrictions and limitations to the use of this planning route, and while for some applications it will not involve a

To build, re-develop or change the use of an agricultural building for diversification, planning permission will usually be required.

This

could

be

Development’ of

through

(where

development

are

‘Permitted

certain granted

types planning

permission by national legislation without requiring a full application) or by applying for Full or Outline Planning consent to your Local Planning Authority (LPA).

full consultation period, the LPA can ‘call in’ to request further information and obtain consultee comments.

The type of consent required for your project will depend on what you are trying to achieve, the form of your diversification, and a number of other factors. The following tables provide an overview of the criteria for when you can use permitted development rights for a change of use development (‘Class Q’ permitted development rights) or putting up a new building (‘Class A’). They are a summary only, and we would always recommend that you seek advice specific to

For some activities that require a temporary

your project. Our dedicated planning team

change of use to land the ’28 Day Rule’

are experienced in securing planning for a

may apply, whereby no planning approval

large range of projects and are always happy

is required – this could include holding an

to answer any questions you may have about

event or tented camping.

the planning process.

Planning makes a big difference to the costs associated with the consent and timescale, so it is advisable to consider the planning implications from the outset of any project.

A ‘Prior Approval’ application may be suitable and is used frequently for agricultural buildings, either to extend or build new fit for purpose buildings or to change the use

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of

redundant

agricultural

buildings

Our planning specialists, based across the region, regularly advise on planning matters for various clients’ needs. If you have any questions relating to planning, please do not hesitate to contact a member of the planning team on:

Alnwick:

01665 568 310

to residential. It enables you to notify

Barnard Castle: 01833 694935

the LPA of your intention to develop. The

Easingwold:

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01347 837100

CRITERIA FOR CHANGE OF USE OF AN AGRICULTURAL BUILDING TO RESIDENTIAL DWELLING HOUSE UNDER CLASS Q PERMITTED DEVELOPMENT The site must be solely in agricultural use, as part of an established agricultural unit on the 20th March 2013, or for a period of at least 10 years.

Total floor area of a large dwelling house must not exceed 465 square meters.

For development of more than one unit: • Larger dwelling houses (100 – 465 square

meters) – maximum of 3 units (limit of 465 square meters) • Smaller dwelling houses (less than 100 square

CRITERIA FOR AGRICULTURAL DEVELOPMENT ON UNITS OF 5 HECTARES OR MORE UNDER CLASS A PERMITTED DEVELOPMENT The agricultural holding must exceed 5 hectares.

There must have been no other permitted development applications on the site in the last 10 years.

(Class Q – conversion of ag building to residential dwelling) (Class S – conversion of ag building to school use) Application must be for the erection, extension or alteration of an agricultural building.

meters) – maximum of 5 units • Combination of larger and smaller dwelling

Must be designed for agricultural purposes.

houses, maximum area is 865 square meters Development under Class A or Class B of Part 6 must not have taken place on the holding since 2013.

Ground area must not exceed 1,000 square meters (calculated to include development within 90 meters of the site which has been carried out within the preceding 2 years)

The development must not result in external dimensions extending beyond the dimensions of the existing building.

If the building is within 3 kilometers of the perimeter of an airfield, the height of any part of the building must not exceed 3 meters.

The development works must not consist of building operations other than:

If the building is not within 3 kilometres of an airfield, the height of any part of the building must not exceed 12 meters.

a. Installation or replacement of windows, doors,

roofs, exterior wall, water drainage, electricity, gas or other services

Site must not be within 25m of a metalled part of a trunk or classified road.

b. Partial demolition to the extent reasonably

necessary for the building to function as a dwellinghouse The site must not be within a National Park, Area of Outstanding Natural Beauty, Conservation Area, The Broads or a World Heritage Site The site must not be within a Site of Special Scientific Interest (SSSI), a safety hazard area or military explosives storage area.

If the building is for housing livestock or the storage of slurry, it must not be within 400 meters of a protected building.

If the building is for storing fuel for or waste from a biomass boiler or an anaerobic digestion system, it must not be within 400 meters of a protected building Planning Application Fee - £96

The site must not contain a Scheduled Monument.

The building must not be Listed.

Planning Fee - £96 for change of use or £206 for change of use plus building operations.

The table above provides a brief summary of the criteria, but the legislation and full rules should be reviewed against any project being considered.

TAKING A FRESH LOOK AT DIVERSIFICATION

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THERE ARE OPTIONS FOR LANDOWNERS TO UTILISE WHEN THINKING ABOUT MAKING CHANGES TO THEIR FA R M I N G E N T E R P R I S E S .

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TAXATION When

or if you wish to be more internet based,

planning

your

project,

the

tax

implications need careful consideration from an Income Tax, Capital Gains and Inheritance Tax perspective.

what social media platforms do you need to be on, how will you take payments, postage, packaging etc?

Speak to others who are in a similar situation

If you are VAT registered, thought should

or have already diversified to gain their

be given to as to what impact VAT will have on any products you want to sell.

Will you still

be competitive or will

Und e rsta nd w ha t pla tform s a re ava ila b le a nd how you m ay b e a b l e to a d ve rtise .

you need to consider a

advice

professional

with

of

unforeseen

problems.

any

The knowledge you gain should be built into your business plan.

MARKETING AND SOCIAL MEDIA

different trading status?

Obtaining

knowledge

regards

For

many

businesses

to your tax position is

social media has been

important to avoid any

a relatively cheap and

unwelcome

cost-effective

or

any

payments longer-term

of

implications.

reaching

advertising

way out

and

products

or services. During the

MARKET RESEARCH

Coronavirus

pandemic,

it has been a key tool

With any new idea time will be well spent

to ensure their business continues to trade

carrying out due diligence. Understand your

even if they have had to adapt in other ways

target market and what your unique selling

to ensure minimal direct public engagement.

point is. How will you deliver the goods or

Understand what platforms are available and

services or are there contracts available

how you may be able to advertise.

which may provide a certain level of income assurance from the outset?

Websites are also an essential way of providing product or company information.

Research your idea, look at whether there

Good examples are farming businesses that

are others already in the area who would

have diversified but also include information

be competitors, are you close to a large

on their farming operations and particularly

population if you require public engagement

environmental achievements and activities.

TAKING A FRESH LOOK AT DIVERSIFICATION

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HEALTH AND SAFETY AND INSURANCES What are the implications of allowing the public on your farm (risk assessments, fire, machinery safety), or what standards do you need to meet if you are producing or selling products direct to the consumer? Your Local Council and Food Standards Agency may need to be involved. Check you have the correct insurance cover, for example with regards public, product and worker indemnities.

YOU ARE NOT ON YOUR OWN Whatever you decide to do, or even if you have not got beyond the first hurdle, there is a wealth of knowledge and experience available to help with the process. From market research, reviewing you existing business, business and succession planning, obtaining funding, planning, grants, or taxation to marketing, with so much to consider even the most experienced business person could not cover all these areas alone. Identify where you need extra support and who is best placed to provide it.

Don’t be afraid to start those conversations early, if we are involved in your project from the beginning, we can ensure that the advice we provide is relevant, timely and of the quality you need to build an outstanding new enterprise.

If you are not already registered with us and would like to receive more information on the Changing Landscape Campaign email: changinglandscape@gscgrays.co.uk with your name and address to register your interest.

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W H AT E V E R YO U D E C I D E TO D O, O R E V E N I F YO U H AV E N OT G OT BEYOND THE FIRST HURDLE, THERE I S A W E A LT H O F K N O W L E D G E A N D E X P E R I E N C E AVA I L A B L E TO H E L P WITH THE PROCESS.

TAKING A FRESH LOOK AT DIVERSIFICATION

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OUR OFFIC ES ALNWICK

COLBURN

HEXHAM

5F Linnet Court Cawledge Business Park Alnwick Northumberland NE66 2GD

5 & 6 Bailey Court Colburn Business Park Richmond North Yorkshire DL9 4QL

Pod 2 Eastburn, South Park Hexham Northumberland NE46 1BS

01665 568 310

01748 897630

01434 611565

BARNARD CASTLE

EASINGWOLD

LEYBURN

12 The Bank Barnard Castle County Durham DL12 8PQ

Far Shires Granary York Road Easingwold North Yorkshire YO61 3EJ

15 High Street Leyburn North Yorkshire DL8 5AH

01833 694935

01969 600120

01347 837100

CHESTER-LE-STREET

HAMSTERLEY

STOKESLEY

Dunns 2, Bowes Offices Lambton Park Chester-le-Street County Durham DH3 4AN

Swallow Cottage Hamsterley Bishop Auckland County Durham DL13 3QF

26 - 28 High Street Stokesley North Yorkshire TS9 5DQ

0191 303 9540

01388 487000

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02/2021

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01642 710742