‘Specialist rural accountancy, tax and financial planning services.’
Welcome to the first 2024 edition of Old Mill’s Rural Insight, focusing on farming and rural businesses.
As we hopefully usher in a sunnier few months to come, it brings me great pleasure to share with you the insights, advice and strategies from our team of advisers and I hope this publication will give you some guidance on the financial complexities and opportunities of modern farming and rural enterprise.
From understanding the future of your farm, to the tax advantages of Furnished Holiday Lets, to clarity on the tax treatment of environmental land management, we cover the topics that we have been discussing with our clients over the past six months.
We are also delighted to have a guest contribution from Dr Karen Wonnacott of Crediton Milling Company. Dr Wonnacott is a well-known Ruminant Nutritionist and is secretary of the Dairy Science Forum. In her article, she outlines the key elements for the farmer to focus on when it comes to cow nutrition.
One of the recurring themes in our discussions is the importance of building assets outside the traditional farm boundaries. Diversification, innovation, and strategic investments are key to creating a robust financial foundation that can weather any storm. The future of farming and rural
business will be shaped by the decisions we make today. Whether it’s embracing sustainable practices, investing in new technologies, or re-evaluating your business structure, the time for thoughtful action is now.
We’re here to support your business and your personal life, answer your questions, and help you achieve your financial ambitions. I encourage you to keep in touch, share your stories, and discuss your plans with us.
Andrew Vickery Partner, Head of Rural
Rural accountants and advisers
Andrew Vickery 01935 709321 andrew.vickery@om.uk
Richard Haines 01225 701225 richard.haines@om.uk
Neil Cox 01749 335019 neil.cox@om.uk
Phil Kirkpatrick 01392 351306 phil.kirkpatrick@om.uk
Rebecca Partridge 01935 709426 rebecca.partridge@om.uk
Dan Heal 01935 709426 dan.heal@om.uk
Oliver Bond 01392 351337 oliver.bond@om.uk
Willem Puddy 01749 335076 willem.puddy@om.uk
Bradley Causey 07392 351327 bradley.causey@om.uk
Kathy Ferris 01225 701283 kathy.ferris@om.uk
Louis Smith 01225 701263 louis.smith@om.uk
Rural tax advisers
Catherine Vickery 01749 335035 catherine.vickery@om.uk
Laura Wylie 01225 701244 laura.wylie@om.uk
Callum Anderson 01935 109416 callum.anderson@om.uk
Rural financial planners Stuart Coombe 01392 351301 stuart.coombe@om.uk
Julia Banwell 01749 335048 julia.banwell@om.uk
Agroforestry
is the latest buzzword
in the world of progressive farming. A system that purposely incorporates trees with agriculture may be considered ‘Agroforestry’ and DEFRA are providing many financial incentives for those who are looking to plant trees on their land.
Broadly, woodland will fall within three basic categories: commercial, amenity and agroforestry. Amenity woodland is an area of trees which has a non-commercial use such as occupation for personal enjoyment or conservation. As a result, in this article, I will focus on commercial woodland and agroforestry.
Commercial woodland is defined for tax purposes as an area of trees that are managed on a commercial basis with a view of realising profits from the sale of timber. Where you can evidence that your woodland meets this definition, the profits from your commercial woodland can be exempt from Income Tax, Corporation Tax and Capital Gains Tax (although the underlying land is not exempt from Capital Gains Tax).
However, bear in mind that any costs associated with that business will be exempt from tax as well.
When it comes to Inheritance Tax, land used within commercial woodland systems does not qualify for Agricultural Property Relief (APR) but may qualify for Business Property Relief (BPR), if the woodland has been run commercially by the owner for at least the two years up to death. Where qualifying for BPR, the woodland could enjoy 50% or 100% relief from Inheritance Tax depending on how the business has been structured.
There are several notable exceptions to these tax exemptions, such as short rotation coppice, Christmas trees and land predominantly occupied for farming. These types of commercial woodland activity would generally fall within the scope of agriculture for tax purposes.
Agroforestry is taking place when trees are designed to be part of productive agricultural land. Examples of systems that HMRC would consider to be ‘Agroforestry’ include woodland shelter belts, game covert and coppices growing fencing materials for use on the farm. Land used for these purposes is treated as agriculture for tax purposes. Consequently, the tax rules that apply to an agriculture business also apply to agroforestry land.
Profits from agroforestry are not exempt from Income Tax or Corporation Tax, therefore any profits arising will be taxed
alongside those of your agricultural business. Equally, any expenses from the agroforestry side of the business can be set against other farming profits for tax.
For Inheritance Tax purposes, agroforestry land is likely to fall within the remit of APR which could exempt 50% or 100% of the agricultural value from Inheritance Tax where the other conditions for the relief are satisfied. Furthermore, where the land forms part of your agricultural business, BPR could potentially be available as well.
In considering Inheritance Tax, where you do not meet the qualifying criteria for APR or BPR, you may be able to claim Woodland Relief. Where Woodland Relief is available you can elect to exclude from Inheritance Tax the value of the trees or underwood (but not the land itself) from the calculation for Inheritance Tax.
Instead, the Inheritance Tax arising on the value of trees is assessed when the trees themselves are disposed of.
Complications can emerge where your woodland meets more than one definition (e.g. commercial, amenity or agroforestry). Where this is the case, it will be important to identify the profits from each part, in order to assess the tax position.
Interestingly, there are also considerable tax reliefs available for ancient semi-natural woodlands. These areas need to be on Natural England’s records to qualify but may be exempt from capital taxes due to their scientific, scenic or historical value.
Are you looking to spruce up your business by planting trees? Need more advice on the financial side of agroforestry? Be sure to log onto the Old Mill website at www.om.uk to contact your local office.
Bradley Causey Adviser
07392 351327
bradley.causey@om.uk
The
Chancellor’s Spring Budget gave some much needed clarity over the tax treatment of Environmental Land Management and Ecosystem Service Markets.
In the 2023 Budget last year, the government launched a consultation with stakeholders in the industry to bring various aspects of tax legislation up to date but, in simple terms, tax law has not kept up with the wide range of newer alternative uses for land, particularly in respect of environmental schemes and offsets. We at Old Mill made a submission to that consultation and the government has started now to react to the feedback received from the industry.
There have been two notable developments announced in the 2024 Budget with the government deciding:
i. To extend the existing scope of Agricultural Property Relief (APR) from 6 April 2025 to land managed under an environmental agreement with, or on behalf of, the UK Government Devolved Administration, public bodies, local authorities or approved responsible bodies and;
ii. Not to restrict APR to tenancies of at least eight years.
While this clarification is welcome, the government has acknowledged the need for far greater up to date guidance on various other tax aspects in relation to these areas and has announced the establishment of a joint HM Treasury and HMRC working group to clarify the tax treatment of the production and sale of Ecosystem Service credits and associated units, in conjunction with industry stakeholders. This should, in time, clarify the definitive tax treatment on matters such as Biodiversity Net Gain (BNG), Carbon trading, nitrate and phosphate offsets.
These are areas that many farmers will be increasingly coming across, either by requirements to offset their own outputs in these areas, or with opportunities to offset on behalf of others.
Either way, until there is clear guidance from the working group and ultimately HMRC, we continue to advise on this based on current established tax principles while working with others in the industry to ensure some consistency.
As a result, the tax landscape over these areas is uncertain and complex, while the opportunities available to farmers and landowners in many cases can be significant in size. We would recommend that anyone considering these areas takes tax advice at an early stage and we are certainly happy to provide guidance to anyone in that position.
Myself and my colleagues are very happy to provide guidance to anyone in that position.
Andrew Vickery Head of Rural 01935 709321 andrew.vickery@om.uk
About eighteen months ago, I penned an article about businesses’ increasing need for working capital. Arguably, this topic is now more relevant than ever.
Recent trends in UK agriculture have been mixed. On the one hand, the fall in the milk price from the heady heights reached post-pandemic means most dairy farms have felt the effects of a contraction of their cash flow (although recent price trends are moving in the right direction). The phased reduction in the Basic Payment Scheme will have also made for an uncomfortable decline in income across the sector. On the other hand, most farms will have been pleased to see an easing of the strident inflation that has seen costs soar in recent years, notably in the fertiliser and energy market.
Working capital – defined as the short-term assets of a business minus its short-term liabilities – is the financial cushion that keeps the business trading. Fundamentally, it is cash and assets that generate cash (like trading stock and monies owed by debtors) that cover the costs of paying creditors and financing debt. Although inflation has declined, its long-term effects will see businesses needing increased working capital to even stand still, let alone generate growth.
Simplified example
Suppose a business has current assets and current liabilities as follows:
• £20,000 cash at bank
• £25,000 debtors to be received
• £10,000 stock to be sold in the short term
• £10,000 other assets (e.g. future services already paid for)
£65,000 total current assets
• £20,000 creditors to be paid
• £10,000 upcoming loan repayments
• £15,000 upcoming asset finance repayments
• £5,000 other liabilities (e.g. services received but not yet invoiced)
£50,000 total current liabilities
The business has working capital (assets less liabilities) of £15,000. This represents a working capital ratio of 1.3 i.e. the business has a margin of 30% more current assets than it has liabilities.
Suppose the business used £10,000 of cash in its bank account to invest in machinery. This would reduce current assets to £55,000 while current liabilities remain unchanged. The business would see its working capital reduce to £5,000 (a working capital ratio of just 1.1) and it would find it much more difficult to pay its debts and keep its creditors happy.
Alternatively, suppose the same £10,000 of machinery was funded through asset finance over, say, five years. Current assets would remain unchanged at £65,000 and current liabilities would only increase by £2,000 (i.e. one year’s worth of repayments) to £52,000. Working capital would fall to £13,000 and the working capital ratio remains at approximately 1.3.
NB: it is important that each business makes financial decisions based on its own specific situation, and there is not a one-size-fits-all policy when it comes to financing or working capital requirements. It is essential to consider both short-term and long-term cashflow, as well as interest costs, when making decisions.
Businesses should aim to maintain a positive level of working capital and some advisers would recommend having a working capital ratio as high as 2.0 (implying the business has twice as much value in current assets than in current liabilities). However, the reality for many farms is a level of working capital far below this, and perhaps even negative. Supposedly short-term debt such as bank overdrafts are often used as a form of long-term financing.
Management of working capital is essential and reducing the time taken to receive monies owed to the business will improve cashflow. While farms that derive most of their income from customers like milk and livestock processors will benefit from timely payment of funds, collecting payment from private customers and for other income streams (e.g. off-farm contracting) will depend on speedy delivery of invoices and efficient chasing of payment.
Forecasting future cash flow is critical for farming businesses. Forecasting involves mapping out monthly income and expenses, taking care to include any expected one-off transactions, such as tax payments and costs for the renewal of machinery. Initiating discussions with lenders when there is expected to be a working capital requirement should take place early in the process.
Many UK farms have expanded over the years with loan financing over optimistic repayment periods. Debt on
variable rates of interest will be costing businesses two or even three times as much as a couple of years ago. Extending repayment periods in order to reduce the capital element of monthly instalments is one of the few options that may be available to preserve precious working capital in the business. Sustainability in this area is crucial. It goes without saying that bolstering income streams is important and replacing Basic Payment Scheme income with funding from other areas (e.g. the Sustainable Farming Incentive) will be an important factor in this.
Farming businesses will require a robust level of working capital to run smoothly. Taking a moment to calculate working capital and forecast future cash flow could pay dividends in the future. Maintaining an adequate level of working capital will be necessary to navigate challenging times and seize opportunities for growth.
If you want to learn more about managing working capital or any other aspect of farm business strategy, our team at Old Mill is here to assist.
Oliver Bond Adviser 01392 351337 oliver.bond@om.uk
Nobody wants to pay HMRC more than they need to.
However, if your farming business is scheduled to make large profits, you will likely end up handing over a sizeable amount of money to the taxman if you do not act. Thankfully, there are multiple ways of reducing that tax bill. Three of the most popular options are pensions contributions, investing in machinery via capital allowances and applying Farmers’ Averaging.
The government offers tax relief on contributions that you make into your pension. If you are a basic rate taxpayer (and so your taxable income is less than £50,270), then the government will effectively add £25 for every £100 you pay into your pension. This will not reduce your tax bill from what it would have been before the contributions, but it means that your pension pot grows by more than the amount you add into it.
Furthermore, there is a way to reduce your tax bill via pension contributions, but you must be a higher rate taxpayer (taxable income of more than £50,270). If this is the case, you can extend your basic rate band by the amount that you pay into your pension. As a result, you can pay 20% tax on some of your income that would have otherwise been taxed at 40%. The amount that you can contribute to your pension and receive this type of relief is £48,000 a year (that is then increased by the government to £60,000 going into your pension).
The classic method of reducing tax liabilities for farmers. No doubt that you will have heard of others going out and buying kit in March to reduce their taxable profits. This is an option due to ‘capital allowances’, which the government offer to encourage businesses to invest in plant and machinery. If an asset that you buy qualifies as ‘plant and machinery’, then you receive 100% tax relief on
the purchase in the year it was bought. Therefore, you can deduct the whole cost from your taxable profit figure. Items that could qualify include tractors, trailers, certain pickups, and slurry storage systems. Please note that you can only claim 100% upfront relief on £1 million worth of capital expenditure per year.
This is something to talk to your accountant about. The government allows farmers to average their profits over any two consecutive or any five consecutive years. This is done because profit levels can fluctuate wildly in our industry and so this system can help smooth tax payments. This averaging can only be claimed on farming profits and no other sources of income. Farmers’ Averaging can only be applied by sole-traders or partnerships.
As you have no doubt noticed, the key to all three of these options is to take action sooner rather than later. Get a sense of the profits you expect to make around three months before your accounting year-end and if profits are high, choose one of the three options above.
Forward thinking
Forward thinking is key. Remember the five Ps: ‘Proper Preparation Prevents Poor Performance’.
Bradley Causey Adviser
07392 351327
bradley.causey@om.uk
Guest spot - Crediton Milling Company
We are delighted to welcome Dr Karen Wonnacott from CMC as a guest contributer.
Dr Karen Wonnacott is a well-known Ruminant Nutritionist with Crediton Milling Company and is secretary of the Dairy Science Forum. Here, she outlines the key elements for the farmer to focus on when it comes to cow nutrition.
As you are all too aware, input costs continue to be a major investment for most livestock farmers. Most of you would see feed as one of the most significant costs to your business so making the most of all inputs being provided to our animals and farmland makes perfect sense.
Our cows rely on us to provide them with, and meet, all their needs whether that be by providing fresh, clean water and food or adequate lighting in buildings, comfortable beds and well-ventilated buildings. The key to the success of any farm is you! Attention to detail and good management really are crucial to the success of any farm business.
Are you able to confidently answer the following questions in relation to your own businesses?
• Do you know how good your system is?
• Are you rearing ‘fit for purpose’ animals?
• Are you making the most of the early feed efficiency gains?
We have a wealth of technical innovation, research and development at our fingertips however, the cows will always tell us! Some key observations to monitor on your farm are: Dung consistency, rumen fill (short-term, gives us an indication of what the animal has eaten in the last 4-6 hours), Body Condition Score (BSC) across the herd/flock (longer term indication of nutritional provision), weight (if possible), growth and development (do you set targets?), behaviour (are the animals calm and content or fidgety and roaming).
To give an example, a silage can analyse brilliantly on paper but if it isn’t regularly pushed up or there isn’t enough space for animals to feed or if heat and moulds are present because clamp management is poor, that silage may never realise its potential in the animal.
We are all busy but when we step outside to go and check on the cattle and sheep in a minute, please remember that fundamentally, our animals rely on us for everything – we need to think more like a cow (or sheep!), more often!
Crediton Milling Company will be celebrating our 60th Anniversary later this summer and is in its third generation of family ownership. We are delighted to field an enthusiastic, hard-working team offering thought and commitment throughout our business. We continually invest in our mill, fleet and personnel and pride ourselves on being one of the very few remaining independent feed mills. For more information, please see our website: www.creditonmilling.co.uk
Crediton Milling: Feeding Tomorrow’s Farmers Today. Tel 01363 772212.
The Chancellor of the Exchequer has announced that the valuable Multiple Dwellings Relief (MDR) for Stamp Duty Land Tax (SDLT) is to be abolished.
The relief will cease to be available for transactions completing on or after 1 June 2024. However, if contracts for the purchase had already been exchanged prior to the announcement on 6 March, then MDR could still be available regardless of when the transaction completes.
MDR is available if two or more dwellings are comprised in a single transaction. The relief works by averaging the purchase price between the number of dwellings, calculating the SDLT on that averaged price and then multiplying that figure by the number of dwellings to get to the much lower final liability.
Example: Mr & Mrs Farmer are purchasing Manor Farm, which comprises of:
400 acres valued at £4,000,000
Farmhouse valued at £1,500,000
2 cottages valued at £250,000 each SDLT based on a mixed-use acquisition for £6m of consideration is £289,500. MDR can be claimed on the residential part of the transaction to reduce the overall liability to £255,500 – a saving of £34,000.
This relief has been open to abuse in the past with much case law on the subject, particularly around whether an annexe can be classed as a separate dwelling from the main house.
The precise impact that the changes will have on the agricultural sector remains to be seen as the government proposes to engage with the sector to ascertain if there are any specific impacts that require further consideration.
Pending the outcome of that consultation, there does remain a window of opportunity to claim MDR under the current legislation and we are here to help you navigate the complexities often associated with determining if there is more than one dwelling for SDLT purposes.
If you would like to discuss this or any other aspect of Stamp Duty Land Tax, please contact Laura Wylie.
Laura Wylie
Associate
Director01225 701244 laura.wylie@om.uk
The end of an era?
Furnished Holiday Lets (FHLs) have been a longstanding diversification for many farms, with many converting barns and using redundant farm cottages to create a valuable additional income stream
Until this year’s budget FHLs have had their own specific tax advantaged regime including:
• Capital allowances on many capital costs which writes off the expenditure against income
• No restriction on interest or finance charges
• Capital Gains Tax (CGT) reliefs including Business Asset Disposal Relief which effectively reduces the CGT rate from 28% to 10%, gift relief and business rollover relief
• Income qualifies as relevant earnings for pension contributions
The budget held in March announced the end of this tax favoured regime from 6 April 2025, after which FHLs will be treated for tax purposes as any other property letting enterprise. Luckily this 12 month window gives owners the opportunity to consider how viable their FHL enterprise is and look at possible changes, for example:
1. With rising rental rates and utility costs, would owners increase their net profit by letting on an Assured Shorthold Tenancy (AST)? Whilst turnover is generally higher from a FHL, the additional costs (not to mention time and effort) might mean an AST is a better option
2. Does the property cause an Inheritance Tax liability at 40%? If the income is not required by the owner, they could consider gifting the property before 6 April 2025 and claiming gift relief which avoids triggering a CGT charge
3. With the interest restrictions coming in (reducing relief from 45% to 20% for an additional rate taxpayer), is outright ownership still better than other structures?
4. If a sale is being contemplated, ensuring this takes place before 6 April 2025 will benefit from the 10% tax rate. This potentially frees up cash for alternative investment, or potentially rolling any capital gain into other business assets
5. For those looking at setting up or expanding a FHL enterprise, ensuring this is done before the 6 April 2025 deadline could maximise use of reliefs available
Our advisers and tax specialists are on hand to consider the above options and more with our FHL owners. It is not only the tax aspects to consider – does ownership still fit with your investment and lifestyle goals? With only a year until the changes come in, now is the time to consider your property investments as part of your overall financial position so do book a meeting to look at what is right for your personal circumstances.
Catherine Vickery Associate Director 01749 335035 catherine.vickery@om.uk
One of the good things about being busy and talking daily to my farming clients is seeing first hand any shifts in thinking or being in the middle of any trends as they pan out.
One such trend that is emerging is the increased – in my world at least – number of clients I am seeing who are taking much bigger and bolder decisions regarding their farm and farming assets, rather than simply carrying on as they were.
To give some examples, several of my clients have been in dialogue with the Environment Agency following inspections, particularly those in the dairy industry. For some, the need to take urgent action to bring their farming infrastructure up to scratch – often at a six figure cost – is the straw that breaks the camel’s back, leading to a radical change of plan. There are some grants available against some of the costs that may be faced, but the prospect of a significant cost must be considered very carefully, especially where there is no clear succession and depending on your age. Understandably a few of my clients have opted not to make those improvements and instead go in a different direction as they were of an age where they couldn’t see a ‘payback’ in a sensible timeframe, and they had no family keen on continuing the same day to day farming operations once they took a step back.
Other clients of mine have come off the back of a difficult year, with weather and staffing often in a state of flux, and deciding that they want to gain back a bit more control. Some have had a painful eighteen months of debt repayments at several percent over the Bank of England base rate, and have sold off assets to reduce or eliminate debt to significantly improve cashflow.
More of my clients have decided that trying to compete is beyond what they can control, so have come to agreements with larger farms, often simply rearing animals for them on a limited basis rather than doing everything themselves as they did before. This is taking worry about feed, vet bills, fluctuating prices etc off the table. By their own admission they have sacrificed some of the ‘top end’ from the good years, but similarly know that they are going to get paid a fair price, with little financial risk, and they don’t also have to suffer in the bad years, ensuring viability longer term.
Am I an expert at any of the above points? Absolutely not, but this is often the starting point for discussions on how income will be derived longerterm, and where to get this from.
In the most basic of terms, personal finances boil down to a question of ‘what do I have and what do I need?’ My job is often to work alongside your accountant and tax planner
in helping to answer this. If the farm makes less money, the shortfall will need to be found from somewhere, and I can advise on the specific building blocks for that – be it savings, investments or pensions. If the farm makes money, again we can look at what to do with any excess in the good years, potentially storing it away for the future in the right way to be a massive help when needed.
The biggest change may be to sell up, either maintaining the farmhouse and a smaller amount of land, simply selling in entirety or selling livestock and machinery and allowing someone else to rent the farm. This throws up several challenges, not least the tax liabilities on exit – potentially with a lot of capital allowances ‘unwinding’ – but also the fact that all future costs may then need to be met personally and not partly by your business, leading to increased income needs. There is also the question of how to structure a large amount of money in the right investments to not incur unnecessarily high levels of tax on an ongoing basis, something more tricky with reduced or frozen allowances over the last few years. There is also the well known point that you may be selling an asset that benefits from generous Inheritance Tax relief, and having them in savings or investments which will be subject to 40% tax if held until your passing. In the right
circumstances, pension planning can also be paramount in the final trading year, an effective vehicle to lower tax and if over 55 years of age, available to you so not having to worry about it being ‘locked up’ longer term.
Working with a financial planner who understands you
The key point to all of this is working with someone you trust who can help you navigate this. Knowing what you can rely on ‘off the farm’ can give you so much confidence to help plan with your other advisers for the farm’s future.
I often talk about building assets outside of the farm, purely because the most successful client stories I have – in whichever direction the farm goes in – come from those who have options and flexibility. Putting those building blocks in place at an early stage won’t be immediately obvious, but it’s often about putting
‘little and often’ sums aside, it’s dealing with windfalls on farms like selling off parcels of land or generating a new income source, or just simply making the best of the really good years, even if they don’t come along as frequently as you’d like. And it’s making the most of the off-farm instances, potential inheritances or one-off events, as well as being disciplined with your money.
At Old Mill, I regularly work alongside my rural accountancy and tax colleagues on succession planning, providing the advice needed to navigate you to the future that you want.
Stuart Coombe
Financial Planner 07815 561333
stuart.coombe@om.uk
‘A number of clients are taking much bigger and bolder decisions regarding their farm and farming assets.’
In the world of finance and taxation, it’s crucial to have a clear grasp of when capital expenditure is recognised for the purpose of claiming capital allowances.
This topic has gained prominence in recent discussions, particularly in the context of pre year-end tax planning. Let’s take a closer look at the key considerations surrounding the timing of expenditure for capital allowances.
The timing of capital expenditure is significant because it determines the period for which a business can claim capital allowances. The general rule is that capital expenditure is incurred when there is an unconditional obligation to make a payment. In most cases HMRC consider this obligation to arise when the asset is delivered.
There are some notable exceptions to this rule:
• Where there is a gap of more than four months between the date on which the obligation to pay becomes unconditional (delivery) and the date on which payment is required to be made. In such cases, the expenditure is not incurred until the date on which payment is required to be made.
• When assets are acquired or financed through Hire Purchase (HP) arrangements. In such cases, the point of capital expenditure is determined by the date the asset starts being used for qualifying business activities, rather than the date of delivery.
There are other complexities, for example with assets built under milestone contracts, but the general delivery rule prevails in the majority of cases.
It’s important to dispel a common misconception – the mere act of signing a contract, placing an order, or paying a deposit does not typically constitute an unconditional obligation in the eyes of HMRC. This clarification is crucial for businesses engaging in pre year-end planning discussions concerning capital allowances.
To ensure that businesses have ample time to order and receive assets, it’s advisable to initiate these conversations well in advance of the year-end. This proactive approach enables businesses to manage asset procurement and delivery efficiently.
Understanding the timing of expenditure for capital allowances is essential for effective financial planning and tax optimisation. These principles remain as relevant today as they have ever been in the ever-evolving landscape of finance and taxation.
Callum Anderson Tax Manager 01935 709416 callum.anderson@om.uk
Environmental Farmers Group (EFG) was established by farmers in the Hampshire Avon River catchment in 2022 to support farmers in navigating the complexities of emerging natural capital markets.
The farmer-led co-operative, supported by the Game & Wildlife Conservation Trust, aims to provide fair financial reward for farmers who are delivering on three environmental objectives of biodiversity and species recovery, clean rivers, and net zero carbon farming by 2040.
Environmental Farmers Group (EFG) was established by farmers in the Hampshire Avon River catchment in 2022 to support farmers in navigating the complexities of emerging natural capital markets. The farmer-led co-operative, supported by the Game & Wildlife Conservation Trust, aims to provide fair financial reward for farmers who are delivering on three environmental objectives of biodiversity and species recovery, clean rivers, and net zero carbon farming by 2040.
EFG provides three main services to farmers for a £1.25/ha subscription fee. Firstly, it onboards new members in specific geographical areas to become part of the organisation. This gives members access to some of the leading information on natural capital in England as well as access to a share of income arising from trading activity. Secondly, it provides trading services, finding trading opportunities with buyers and managing trading opportunities to ensure that farmers are achieving a fair price when negotiating with various buyers. Thirdly, it supports farmers in how they measure natural capital and demonstrate, collectively, their progress towards environmental targets.
The main advantage of EFG (for farmers, buyers and the environment) is the power delivered by its scale. This scale gives farmers weight in the marketplace, allowing them to achieve a fair price for providing natural capital services whilst also making it much easier for buyers to purchase a wide range of natural capital services from a trusted seller with a single point of contact. Most importantly, this scale allows farmers to make business decisions which work for their farm whilst demonstrating how their environmental practices are contributing to the wider landscape. The model evolved from the ‘farmer cluster’ concept and the benefit of geographically targeted change.
Since 2022, EFG has gone from strength to strength, and this scale is now demonstrated with the farmer co-operative now compromising over 450 farmers covering over 220,000ha. The areas covered by EFG now include Hampshire, Wiltshire, Dorset, Isle of Wight, Northamptonshire, Leicestershire and Northern Lincolnshire. EFG completed its first trade last year (worth £1m) and has a pipeline of over 20 trading opportunities valued at £12.5m. The group has been included in the government’s Green Finance Strategy and is building a strong network of buyer contacts in both statutory and voluntary natural capital markets. It has recently onboarded a third full-time resource (a dedicated Commercial Officer) and is advertising for resources locally, too.
EFG have been kindly supported by a number of local sponsors, including Old Mill which has sponsored since 2022. EFG is grateful to Old Mill for this support which has enabled the co-operative to grow so rapidly. In addition, Old Mill has been supporting EFG on the tax implications of natural capital (EFG and Old Mill submitted a joint response to the government consultation on tax matters) as well as in a new project to look at carbon accounting on farms. This project is measuring (using technology provided by the Farm Carbon Toolkit) the carbon emissions of EFG Members to calculate the overall carbon footprint in each EFG area.
EFG is now focused on accelerating its trading activity as well as rolling out an environmental baselining approach. For more information on EFG or how to join as a member, please visit: www.environmentalfarmersgroup.co.uk
Digby Sowerby, Operations Officer
It is a common misconception that you need to be working in a laboratory to be undertaking Research and Development (R&D). This is simply not the case and many of our farming clients have been able to make use of this valuable tax incentive available to Limited Companies.
To qualify for R&D there needs to be an advance in the field, not just in the Company’s own knowledge, in terms of science or technology that has not yet been achieved. However, R&D can still take place if advancement has already been made so long as the details of which are not in the public domain.
For a project to qualify as Research and Development (R&D):
• there needs to be a technological or scientific uncertainty
• the aimed advance in science or technology needs to be over and above what a ‘competent professional’ in the industry would be able to deduce with relative ease
You may have spent time developing a new product, process or service, or even enhancing an existing one. The project doesn’t need to have succeeded in order for you to make a claim.
For every £100 spent, the Company could reduce its profits by an additional £86 which results in a Corporation Tax saving of up to £21.50.
A claim must be made within two years of the year-end in which the R&D work was undertaken. The new rules state that new claimants and those who haven’t made a claim in the last 3 years must file a claim notification form within 6 months of the year-end.
• Proportion of the staff costs of those working on the project (including pension and National Insurance contributions)
• An element of any R&D subcontracted out by your business
• Other workers (such as agency staff) enlisted to help with your R&D project
• Materials used in trials and tests etc
• Repairs to machinery used
• Light, heat and water used
• Software used in the projects.
In addition to the above, if the whole (or even part) of a building or machinery bought or constructed in the year is used for R&D, a proportion of this can also be claimed.
We regularly help many of our clients put together successful R&D claims, and we’ll work with you from the beginning of your claim through to its completion. We talk with you and any technical experts used to identify the qualifying projects, work with you to write a project description, help put together your qualifying costs, and critically review both to ensure that a robust claim is being submitted. We keep you informed every step of the way, and liaise with HMRC on your behalf, securing you a refund that is usually repaid to you within eight weeks.
If you think you may have a project, please give Kathy Ferris a call to discuss this further.
Kathy Ferris Client Manager 01225 701283 kathy.ferris@om.uk
‘..many of our farming clients have been able to make use of this valuable tax incentive..’
Contact
Exeter
Leeward House
Fitzroy Road
Exeter Business Park
EX1 3LJ
+44 (0)1392 214635
Chippenham Unit 2
Greenways Business Park
Bellinger Close
SN15 1BN
+44 (0)1225 701210
Wells Bishopbrook House
Cathedral Avenue
BA5 1FD
+44 (0)1749 343366
Yeovil
Maltravers House
Petters Way
BA20 1SH
+44 (0)1935 426181
