The Basic Payment Scheme has provided valuable income for farming business, particularly those in the arable sector. The Government has confirmed no changes will be made for 2019 or 2020 and has announced deductions for 2021. The deductions are at rates between 5% and 25% and are staged as with income tax. Farmers can plan for this and should build the deductions into their cash flow forecasts.
Post 2021, deductions will be dependent on Spending Reviews and requirements under the new Environmental Land Management Scheme (ELMS); the Basic Payment Scheme’s replacement once we’re outside of the EU. ELMS may prove a valuable income stream for some farms, particularly those with a heavy focus on the environment. That said, the general consensus is that support will fall and so it is important to take a step back to review the profitability of your business without any support to see if you can make a viable profit.
If you can’t make a profit, you will need to consider what can be done to make it viable. This could involve changing cropping plans for poor performing fields or taking them out of cropping altogether and into the new ELMS scheme, partnering up with others to ensure machinery is used to full capacity or diversifying into non-farming activities or farming activities less dependent on subsidies, e.g. intensive livestock.
Being less dependent on the Basic Payment Scheme may provide more opportunities for increasing income from the sale of crops. Land may be farmed without abiding by regulations which are set centrally by the EU for a variety of countries with very different farming environments. This may encourage more efficient farming and an increase in yields.
The Agricultural Bill explained that the Basic Payment will be de-linked from the requirement to occupy land in the future. This along with the option for a lump-sum payment may provide financing options for those who are already looking to retire from the business. The Government will release a consultation on how this will work later this year which should provide more clarity. We particularly have concerns with how a lump-sum payment would be assessed for tax purposes which could give rise to tax liabilities up to 47% of the payment.
