Due from the printer this week. 130 pages on Income, Capital Gains, Inheritance, VAT, Trusts etc etc including latest changes as they affect farming and the rural economy. For more details Continue reading “Concise Rural Taxation 2017/18 Edition”
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.
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.
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?
Concise Rural Taxation (formerly Taxation for Students of Rural Land Management) is now an annual publication. This year’s edition is now available. Continue reading “Concise Rural Taxation 2017/17 Now Available”
Headline points from the 2016 Budget for the rural economy and property. Get out of sugar, get into tunnelling, run a micro-business on the side, infrastructure needs you, take your capital gains now, incorporation is looking better and better unless you intend to sell your professional services to the public sector, drink whisky and beer not wine. Despite this, old age and death are beginning to look expensive.
A £3.5 bn reduction in public expenditure is not intended to dent George Osborne’s claim that, “We [ie the Conservative Government] are the builders”. Practically this means Continue reading “Budget 2016: Rural and property points”
The government is seeking evidence on the taxation of employer provided living accommodation. An explanatory document has been issued and the deadline for responses is 3 February. It is worth reading for its clear explanation and examples of just how complicated the taxation of employer provided living accommodation has become over the last forty years or so. It can be found at this link: Government consultation on employer provided living accommodation.
One particular question of the 16 caught my attention. It’s number 10, and it asks:
Do you agree that using market rental value would provide a simplification to the tax rules on provided living accommodation? How could such a system work and what would be the impacts on both employers and employees?
I wonder what the effect of this might be on rural employees who live in houses which might be considerably larger or more expensive than they would otherwise choose, or indeed than they may be able to afford? I have devised a simple survey which will allow some data to be collated if we can gather enough responses. Some of the questions ask how many people of different ages live in the accommodation. This will allow comparison with the maximum size of accommodation that would be acceptable for Local Housing Allowance purposes. Please complete the survey by the end of January and this will allow the responses to be collated in time for the government’s deadline.
This link: Accommodation Survey will take you to the survey. Thank you for your help which could be most valuable in providing evidence for the government’s review.
This year’s edition of Concise Rural Taxation is now available. See the tab for further details of this year’s content, how to order and price (held at the same level as last year).