VAT payments deferred
The VAT deferment applies automatically to all businesses and will benefit around two million taxpayers. VAT returns still need to be submitted on time and repayment claims will still be processed as normal.
The VAT deferment applies automatically to all businesses and will benefit around two million taxpayers. VAT returns still need to be submitted on time and repayment claims will still be processed as normal.
For the year 2020 to 2021, it was announced that the business rates retail discount will be increased to 100% for all properties with a rateable value of less than £51,000, and for all businesses in the hospitality and leisure sector, such as museums, theatres, gyms and pubs.
Employees are entitled to unpaid time off work to help someone who depends on them. For example;
There’s no statutory right to receive payment for this time off, but you should refer to your policy as some employers have offered to pay staff in such cases.
The government recognises that many small businesses pay little or no business rates because of Small Business Rate Relief (SBRR). To support those businesses, the government will provide £2.2 billion of funding for Local authorities in England. This will provide £10,000 to around 700,000 business currently eligible for SBRR or Rural Rate Relief, to help meet their ongoing business costs. For a property with a rateable value of £12,000, this is one quarter of their rateable value, or comparable to 3 months of rent. Most properties that are eligible for SBRR will have a lower rateable value, and so this will represent an even greater proportion of their annual rent.
In addition to a 2020/21 business rates holiday, a £25,000 grant will also be provided to retail, hospitality and leisure businesses operating from premises with a rateable value between £15,000 and £51,000. There is no need to apply for this grant which will be paid by the local authorities.
HMRC has been instructed to show increased leniency regarding time to pay arrangements for taxation payments and a dedicated helpline has been set up for any businesses concerned about their ability to make future payments (0800 015 9559). This allows businesses a time-limited deferral period on HMRC liabilities that are owed and a pre-agreed time period to pay these sums back. These tailored arrangements will give a business the time it needs to pay HMRC to support their recovery while operating through any temporary financial challenges that occur. To ensure ongoing support, HMRC have made a further 2,000 experienced call handlers available to support firms in difficulty. HMRC will also waive late payment penalties and late payment interest where businesses experience difficulties contacting HMRC or paying taxes due to COVID-19.
It all depends on what the business is diversifying into…
If the business is diversifying into other farming activities, for example, from arable farming to poultry farming, there will be little change to the tax position. All income from farming is assessed as one trade for tax purposes and there will be no change in the VAT position, Inheritance Tax reliefs or Capital Gains reliefs.
If the business is diversifying into investment activities, for example, property rental, there can be a substantial change in the tax position. For income tax purposes, the rental profits will be a separate trade which can carry their own tax rules. Generally speaking, rent is exempt from VAT which can lead to a restriction of input VAT reclaimed on overheads. Agricultural and Business Property Relief may not be available at all if the business is not “wholly or mainly trading” and so if the rental business will be larger than the farming business, you should consider restructuring to protect valuable reliefs against the farming assets.
Diversifying into renewable energy can be attractive from a tax perspective as some projects qualify for capital allowances at rates of 6%, 18% or 100% of expenditure. If the energy is used in the farming business, the Inheritance Tax and Capital Gains position won’t change. If the energy is sold, it may be considered an investment activity, which, as mentioned above, can lead to restrictions in reliefs available.
Setting up a trading business will still see changes to the tax position of your business. For income tax purposes, the profits will be a separate trade which can lead to restrictions if one of the trades is making losses or with farmers’ averaging claims. For Inheritance Tax purposes, Business Property Relief will be available on the new trading assets without any tainting of Agricultural Property Relief on the farming assets.
Changing risk profiles for diversification means that you should consider diversifying in a separate entity with limited liability to safeguard the existing business against any claims.
There’s a lot to consider with diversification from a tax and accounting perspective so it’s important to talk ideas through with a specialist to ensure you don’t encounter into any pitfalls.
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.
You should prepare a will to set out who you would like to benefit from your assets (including your farm) on your death. It is important to think about who you would like to benefit from your assets and what the tax implications might be. Inheritance Tax needs to be considered on death, where a liability arises this can be detrimental to businesses, particularly farms with high capital asset values where there may not be cash available to fund the liability. To help mitigate the inheritance tax due there are two important Inheritance Tax reliefs which can apply to farms where certain conditions are met.
It is important to review the whole farming enterprise and your personal financial position to identify where Inheritance Tax reliefs are available. Agricultural Property Relief can provide relief against Inheritance Tax at 50% or 100% of the agricultural value of an asset. Where farms are heavily diversified or have non-agricultural value, e.g. hope value for land development, Business Property Relief can provide relief at either 50% or 100% of the value of an asset.
Once your current position has been established consideration can be given over whether you can improve the inheritance tax reliefs available to you and if you should consider planning giving assets away in your lifetime.
Few people can talk about their deaths comfortably with their family and loved-ones but it is essential to have open and honest discussions so that everyone is aware of your wishes. This is particularly important where you have multiple children, some that are involved in the farming business and some that aren’t.
The rules surrounding Inheritance Tax and the reliefs available are complex and so it is.
There is a special exemption where a “subsidiary dwelling “ is purchased with a house. As long as the smaller dwelling is purchased in the same transaction as the main dwelling, it is valued at less than one third of the total purchase price and it is within the grounds of the main house then you are not treated as buying two dwellings. However, there may still be an opportunity to benefit from multiple dwellings relief, which can lower the overall SDLT bill.
The higher rates will apply as following the purchase you will own an additional residential property and is this is not replacing your main residence. Unfortunately, a refund of the higher rates cannot be claimed once the properties have been merged as refunds are only available where a previous main residence has been disposed of.
The answer here depends on whether you are a married/in a civil partnership or are unmarried. A husband and wife each own a residential property (with neither having any interest in the other’s property) but both live in the property owned by, say, the husband, with the property owned by the wife being rented out. If they sell their main residence and jointly buy a new one the higher rates will not apply to the joint purchase. As they are married and have both lived in the property owned by the husband as their main residence they will both be treated as replacing their main residence, even though the wife retains the rental property. An unmarried couple (A and B) each own a residential property and both live in the property owned by A, with B’s property being rented out. If the main residence is sold and they jointly purchase a new one, which will be their new main residence, the higher rates will apply to the joint purchase of a new main residence. As they are not married (or in a civil partnership) B will not be treated as replacing his main residence as, even though he has been living in the property owned by A, he has no interest in the property A is selling.
A replacement of a main residence can be achieved by making a gift of the former main residence, as this still counts as a disposal. However, a gift to a spouse would not avoid the surcharge as neither the purchaser or their spouse can retain an interest in the former main residence in order to be outside the surcharge. Gifts should be considered carefully, as they could create other tax liabilities, such as capital gains tax on disposals, inheritance tax and income tax on future rental income.