Farming tax breaks: true or false

Saturday’s BC Radio 4 Today programme broadcast an interview with Prof Dieter Helm, the economist who chairs the government’s Natural Capital Committee.  Prof Helm made some cogent points about the ad hoc development of various policies for the agricultural industry, calling farmers subsidy junkies along the way and highlighting ‘exemptions’ from tax.  He particularly mentioned Diesel, Rates and Inheritance Tax.  But is Prof Helm right?  Are farmers treated any differently than the rest of us?

Diesel.  Farmers use so-called Red Diesel in their tractors and other land machinery.  It is red because it has been stained to distinguish it from diesel on which petroleum duties are levied (often called DERV – Diesel Oil for Road Vehicles, Diesel Engined Road Vehicles).  Red diesel is also called Gas Oil.  Farmers must use DERV in vehicles which must travel on public roads a lot for example pick-up trucks, or tractors used extensively on the public road.  Other industries that use diesel engines off the public road also use red diesel, notably the construction industry, quarrying and rail transport.  Boats with diesel engines also use red diesel, whether for commercial or leisure operations.  Customs Officers are regularly to be found at agricultural markets and country shows ‘dipping’ vehicle tanks for the tell-tale red stain.  So no difference here from other industries: we all pay more fuel tax on vehicles which go on the public road but don’t have to pay it on off-road vehicles.  VAT is also payable on fuel and in this respect the farming industry is also no different from other industries.  As an aside, landowners who do not farm are generally unable to reclaim VAT.

Rates:  Farming has been exempt from the general property rate since the 1930’s.  The history of agricultural rating goes back further to the 19th century when farm land was generally subject to a reduced rate.  It is however little known that about 11% of the land area of England and Wales is subject to a rate on farmland, in the form of the rates levied in the Internal Drainage Districts.  These are used to pay for the upkeep of local drainage systems which benefit farmland and other properties in the areas concerned.  Like the rest of us, farmers pay Council Tax on their houses.

Inheritance Tax: Farmers may benefit from Agricultural Property Relief on the value of most of the farm when they die.  For an owner-occupier who satisfies the rules the rate of relief is 100% of the agricultural value of the property, which in practice can be less than its full market value.  So a special concession for farming?  Well no not really.  Other businesses (and indeed farming businesses on their other assets) also qualify for Business Property Relief.  This relief is also set at 100% for most cases and is given against the market value of all the assets used in the business.  The idea behind both reliefs is to keep capital in the business.  For sure, agricultural landowners can also claim a variety of agricultural property relief but the radio remarks were about farmers not landowners.

Business Property Relief has some further surprises.  For example many of the shares quoted on the Alternative Investment Market (AIM) also qualify for 100% Business Property Relief.  Furthermore the income from those same shares is taxed at lower rates of Income Tax than earned income including trade profits: the first £5,000 of dividends are free of any Income Tax, basic rate income tax is levied at 7.5% instead of 20%; higher rate at 32.5% instead of 40% and additional at 38.1% compared with 45%.  Grateful thanks indeed for investors who are willing to invest some capital in AIM stocks and wait for the income and gains to roll in (while of course accepting the risks of losses).

To highlight the comparison, consider £5 million invested in a farm, another business or AIM stocks and shares.  In each case the combination of reliefs could reduce the taxable value of this investment for Inheritance Tax purposes to zero.  Along the way the owner of the shares will pay less Income Tax per pound than either the businessman or the farmer, whose tax bill will be broadly similar at similar levels of profit.  The farmer’s return on his £5 million is however, likely to be considerably lower than either the share owner or the businessman, with or without subsidies.

The interview on Radio Four can be heard at this link for the next 29 days.  It starts at 1 hr 10:03 mins and finishes at 1:20:50.   It’s fairly characteristic of the uninformed and poor insight shown into questions of rural, farming and food policy shown by so much of our public media.  John Humphrys and Radio 4 really should be able to do better, even in just 10 minutes.

–ooOoo–

A few copies of Concise Rural Taxation 2016/17 are still available for any reader whose appetite has been whetted for rural taxation.  See the separate tab for order details, or wait until the autumn for the next edition.

First among equals

The BBC reports today that first class degrees are soaring.  What are employers to make of this?  Does it mean there are more top class graduates than ever?   More committed students?  Better teaching?  Easier assessments?  More teaching to the test?  Dumbing down?  Any, all, or more.  Expect the usual comments, debate and lack of any meaningful conclusions or changes.  Meanwhile how helpful are degree classifications in choosing a new professional trainee in rural surveying or similar professional consultancy work?  The safe answer is probably, not a lot.

There are excellent examples of graduates who are now leading members of their professions, yet showed little inclination or sign of this as undergraduates.  There are also examples of top-class graduates who have made little headway in commercial, professional or for that matter academic life.  And of course there are low grade graduates who have achieved relatively little since and high grade graduates who have indeed gone on to great things.  Firm relationships prove elusive.

How would I address this today if I were recruiting a new professional assistant?  Here are my tips:

  • I would ask to see the profile of final marks they got for all the modules they studied on each year of the course.  This may highlight relative strengths and weaknesses (but don’t be too sure – you may just be looking at normal variations between one subject and another despite increasing attempts to homogenise these profiles).  These profiles are routinely issued to graduates by all universities.
  • Ask the candidates to prepare some work beforehand.  Perhaps an article for the firm’s newsletter of 500 to 1,000 words, on a given topic.  This could even be useful alongside an announcement of the arrival of the new recruit in due course.
  • Warn the candidates they will be asked to advise a client on a particular subject in exam-like conditions as part of the recruitment process.  Provide some warning of the subject, eg contentious rent review on a let farm, claim for a water-pipe burst or something which is relevant to the work they will be doing.  Allow reference material.  Ask the candidates to draft a short email or letter to the client or other party setting out their advice, by hand.
  • Meet the team: but make sure the team is briefed for whatever feedback you want from them on the candidates.
  • Use the interview imaginatively – include a mix of technical and problem-solving questions; ask candidates to perform a task which they might encounter in their working life with you.
  • Try to find the class position of the candidates.  For example in the top 10%, 25%?  On a reasonably sized course this at least gives an idea of relative performance within the cohort.  It’s not information that is routinely issued to graduates nor readily available, but there’s a growing case that it should be – perhaps to the nearest decile for courses with 50 or more graduates, and quartile for smaller courses.

And if you must persevere with placing any reliance on degree classifications it might be worth checking the statistics for yourself.  The Higher Education Statistics Agency produces the data that underpinned the BBC Report, and UniStat can give you information on individual courses at individual universities.  Comparison of classifications is not the only or the most useful way to compare potential graduate employees.

 

Land Management Today

Masthead design

Land Management TODAY – LMT – is published for the first time today.  The first edition is the work of a group of postgraduate students at Harper Adams University who came together at the end of June to study a module called Land Use and Management.  The first edition contains 28 short articles covering a range of topics.  Download your copy of LMT here: Land Management Today July 2017.

Here is the full contents list:

  1. How farming is set to lose its flavour
  2. Buying into Ecosystem Services – whetting the appetite for diversification
  3. Battery storage, the next big thing for energy production?
  4. Branding: Rural Estates in the head and on the ground
  5. Bringing Back Britain’s Trees
  6. Avoiding Failure with Forwards and Futures .
  7. Smother With Cover: black-grass .
  8. A Tale of Two Leys
  9. Will Dairy Cows Ever See a Human?
  10. Conventional v Organic: Breaking Down Barriers
  11. Diversity & Inclusion; The £24 billion boost
  12. Farm smart in the hills
  13. The Drones are Coming
  14. Finding your perfect partner: Relationships not Rules for land tenure success
  15. State Open for Business
  16. Tax simplification; anything but simple
  17. Spring Budget Basics for Taxation on Rural Estates
  18. Brexit for Breakfast
  19. Agricultural Trade: “Preparing for the Worst, Hoping for the Best”
  20. Soil Health Subsidies
  21. Countryside Stewardship Scheme
  22. Telecommunications-The Implications for Rural Land Owners
  23. Telecoms and the Rise of Statutory Powers
  24. Compulsory Purchase: RICS mandates practice with new PS
  25. Make sure you don’t lose out with Business Rates
  26. No Growth in the Greenbelt
  27. Mid-Tier Countryside Stewardship and Capital Grants – are you missing a trick?
  28. H-App-y Maps
  29. Contributor Profiles

This is the first in what we hope will continue as a series of occasional papers on current topics of concern to land management today.

Smallholdings: State of the Nation

The county smallholdings estate is generating an operating surplus of £16.1 million from more than 2,500 farms covering an area of 86,700 hectares let as smallholdings.  In the words of the report from which these data are taken:

Whilst the data set is incomplete this report indicates that council farms continue to play an important role in the tenanted agricultural sector across England covering approximately 86,700 hectares of agricultural land providing approximately 2,583 holdings for around 2,081 tenant farmers. About sixty percent of the lettings are equipped farms (1,536 equipped holdings) and 49 lettings were made to new entrants during 2015/16. The report shows that the reporting smallholding authorities generated a revenue account net surplus of just over £9.5 million in 2015/16.

What more can be gleaned from the 66th Annual Smallholdings Report from Defra? Continue reading “Smallholdings: State of the Nation”

Rural Proofing: a key reference for rural activists and analysts

Rural analysts and activists take note.  Defra has updated its rural proofing guidance this week.  This will be a key reference for anybody interested in the development and impact of policies which affect rural areas.  Why?

Because policy measures are meant to have been ‘rural proofed’.  So the criteria for rural proofing are important because they provide a framework for the independent evaluation of rural impact.  They are also therefore a sound basis on which to challenge measures which may adversely affect rural economic, social and environmental interests, or to promote measures which will support these interests.

The Defra guidance tells us:

Thriving rural communities are vital to the English economy. A fifth of us live in rural areas and they are home to a quarter of England’s businesses, and generate 16.5% of the English economy. Rural areas face particular challenges around distance, sparsity and demography and it is important that government policies consider these properly.
Rural proofing is about understanding the impacts of policies in rural areas. It ensures that these areas receive fair and equitable policy outcomes. This guidance sets out a four- stage process to achieve this objective.

Figure One of the Defra Guidance offers this four stage process for rural-proofing:

Rural Proofing Process

The Guidance goes on to suggest this way to assess rural impact:

Rural Impact How to Assess

Worth a look for anybody concerned with rural policy and development nationally, regionally or locally.

New Brexit Blog

I have set up a new blog site solely dedicated to Brexit, Farming and the Rural Economy.

You can see it here, and in particular a page of links to useful information which I hope to keep updated with relevant publications and other sources of Brexit information as they appear.

I hope you will find it a useful resource.  Please send in any suggestions for material you think is needed, or other suggestions for its development.

Budget 2017: Rural Round Up

No discernible direct rural points in today’s Budget, but nevertheless there is plenty to think about with the rural implications of the general measures.  In no particular order:

  • The rating announcements are welcome.  A small life belt for the remaining rural pubs with the news that any pub with a rateable value of less than £100,000 will benefit from a £1,000 discount.  Meanwhile businesses which have lost rate relief as a result of the revaluation will see their new rates bill capped at no more than £50 per month.  This is still a notable extra £600 per year which is still likely to be felt in the smallest of businesses to lose relief.  There is also to be a hardship fund of £300 million.
  • The rural self-employed will want to look at the changes to National Insurance contributions which arrive in April 2018.  Class 2 contributions – the weekly ‘stamp’ as it was once known – will be abolished; but Class 4 contributions (based on profits) will go up from 9% to 10%, with a further rise to 11% in April 2019.  Except at the smallest level this will lead to a rise in NICs for most self-employed men and women.
  • Rural skills may benefit from the introduction of T Levels, which will be a new form of technical qualification sitting alongside A Levels (and apprenticeships and .. and ..)
  • The introduction of Digital Tax continues but a small olive branch is the delay in its application to smaller businesses.  At least this gives  a breathing space for smaller rural businesses but will broadband arrive at the far end of the valley in time for online digital tax recording in April 2019?  Perhaps the commitment to spend £16 million on 5G may help, along with the £200 million committed to local broadband.
  • Meanwhile April 2018 becomes the deadline for digital tax for businesses which have profits chargeable to Income Tax, pay Class 4 NI contributions and have a turnover above the VAT threshold – so that’s most farms.
  • April 2019 is the deadline for Income Tax/NI payers who are below the VAT threshold.  It’s also the deadline for any body registered for and paying VAT.
  • April 2020 is the deadline for payers of Corporation Tax (unless presumably already caught by the April 2019 deadline for other VAT payers).
  • Businesses, self-employed and landlords are exempt if turnover is less than £10,000.  Employees with secondary income of more than £10,000 a year from self-employment or property are also caught by the new digital provisions.
  • Digital Tax will therefore be wide ranging and pervasive in its impact, especially for businesses which have maintained traditional records of their income and expenditure.  Preparations will have to be made.
  • Various plans to invest in electric vehicles, robotics and artificial intelligence (£500 million) should feed through to benefits for the agricultural industry, and £300 million to support 1,000 new PhD students in science, technology and engineering subjects may also have agricultural and rural benefits.
  • We are promised various consultations in the year ahead.  The key ones to look out for seem to be:
    • Rent a Room Relief – probably aimed at excluding the AirBnB’ers but could have unintended consequences for those who provide board and lodging for workers for example.
    • Employer provided accommodation – HMRC has undertaken research on this topic recently.
    • Landfill Tax – extending the scope to illegal disposals (not before time but the challenge will be to apprehend the miscreants).
    • Digital Tax Administration (yes, more)
  • We are also promised future calls for evidence in the following areas:
    • Employee business expenses
    • Taxation of benefits in kind
    • Red Diesel – this seems to be aimed more at the use of red diesel in various urban situations, but again beware unintended consequences of anything which might subsequently emerge
  • Insurance Premium  Tax is to rise by another 2% from June 2017.  As any renewal quotation shows this tax is now a significant additional cost.
  • The scope of ‘cash accounting’ for smaller businesses is to be increased, to an ‘entry threshold’ turnover of up to £150,000.  Once in it will be possible to stick with cash accounting up to £300,000.  This could be a useful simplification for some rural businesses, and the government has promised to provide a simple list of disallowed expenditure under the cash basis in this year’s Finance Bill.
  • Unincorporated property businesses will generally be allowed to calculate their taxable profits on a cash basis as well.
  • Meanwhile the tax free allowance for the first £5,000 of dividend income is to be reduced to £2,000.  This allowance is only a year old.  The figures probably equate to tax free dividend income from a shareholding of about £100,000 and £40,000 respectively (that’s assuming a portfolio which is paying 5% net in dividends – many will be much lower).
  • The domicile rules for Inheritance Tax change from this year.  ‘Non doms’ will nevertheless be deemed to be domiciled in the UK for tax purposes where they have been a UK resident for 15 of the past 20 tax years.  Worth looking at for the more international among us.
  • The sweet toothed will pay more for their sugary drinks from April 2018.  A lower rate of 18 ppl will apply to sugary drinks of 5 to 8 g of sugar per 100 ml, and 24ppl above this.  Less demand for sugar?  One for the sugar beet growers?
  • The Aggregates Levy remains frozen at £2/tonne, a rate set in 2009.
  • Technical changes are laid for disposals of land which are subject to Income Tax or Corporation Tax, and the payment deadline for Stamp Duty Land Tax will reduce to 14 days from 30 days in April 2018 (this change was to have been introduced before then).

What have I missed?