Agriculture Bill 2018 – What about the tax?

The Agriculture Bill which was published on 11th September gives the Secretary of State powers to introduce legislation by statutory instrument in order to implement the new post Brexit agricultural policy outlined earlier this year in the Health and Harmony consultation.

The main thrust of the Bill is to restore the health of the farmed environment, improving the quality of air, water and soil. There are also proposals to broaden public access to the countryside and to address concerns about animal and plant health. The Bill also picks up other issues such as the vulnerability of farmers within the food supply industry and the effect of volatility in agricultural prices.

The Bill also gives further detail on measures which had previously been promised:-

– For 2019 and 2020 the amounts paid under the Basic Payment Scheme (BPS) or a post Brexit replacement will be very much the same as previously, but some EU rules may be relaxed.

– The transition period for the new regime has been set at seven years. Larger subsidy reductions will be implemented sooner for bigger farms

– The transition payments will be “delinked” from agricultural production and there will be an option to take the delinked payments as a lump sum where farming ceases.

There are, however some areas of concern on the tax implications of the proposed new rules. Unless there are statutory provisions to the contrary, tax treatment for both limited companies and unincorporated businesses will follow the accounting treatments set out in Financial Reporting Standards (FRS). There are specific rules for the accounting treatment of government grants, and FRS 102 states that “A grant that becomes receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the entity with no future related costs shall be recognised in income in the period in which it becomes receivable”. According to the explanatory notes, Clause 7, s (3) para c “makes it clear that delinked payments are a replacement for payments under BPS”.

What this means it that the delinked payments will be subject to income tax, as expected, but that this would probably also apply if they are taken on retirement as a lump sum. There is an implication within Health and Harmony that encouraging some early retirements might be a good thing for the industry, but taxing them in full as income is not necessarily going to encourage the early exits.

Since the delinked payments will, by definition, have no relationship to continuing agricultural activities, they might not be treated as earned income, and thus will not be eligible for pension relief which, again, removes a useful retirement option.

Finally, Since the BPS scheme will come to an end in 2020 or 2021; it would appear that any purchased BPS entitlements will give rise to a constructive loss relief claim for Capital Gains Tax purposes. This would be useful if lump sum payments on retirement could be treated as capital, but otherwise is probably of limited value until such time as a capital gain arises in future.

It is, of course, not too late for changes to be put into the act to address these tax concerns, and it is to be hoped that there will be sufficient cooperation between DEFRA and the Treasury to do so.

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