With a 25-year background in farm and rural estate finance, Mark Ashbridge was best placed to offer farmers thought-provoking financial insights as a guest speaker at the Scrutton Bland Farming Conference titled ‘Navigating Change – Seeking Opportunity’ in early 2023.

Having started out as an agricultural consultant, Mr Ashbridge soon moved into the banking world, focusing on estates and farms, before founding his own business Ashbridge Partners in 2012. Now supporting a team of 14, the company provides financial advice to landowners of many estates across the country, with a focus on the East Anglia region.

Projects currently funded by Ashbridge Partners include:

• Core agribusiness such as dairy/poultry/arable infrastructure
• Property development & commercial real estate
• Residential farm purchases
• Tourism, hospitality and leisure
• Debt re-structuring

Addressing the current volatility of the finance market, Mr Ashbridge remarked: “I don’t think we have seen this level of change in the finance marketplace since 2008.”

He identified the pandemic of 2020, the invasion of Ukraine and rising inflation as the main factors driving the UK market, highlighting inflation as a key component that fundamentally changes the economic climate.

With regards to agriculture, he mentioned the issue of farmers seeing low levels of return (1-2%) on yield, with diversification projects offering much higher returns, though at the cost of greater time inputs and risk.

However, when it comes to lenders, farmers and landowners enjoy a competitive advantage. Mr Ashbridge explained banks view agriculture as a ‘safe’ sector from a risk perspective and are prepared to offer better loan terms, structure and pricing.

The reason for this being that farmers don’t tend to disappear as they are rooted on their land. Therefore, growers can more easily access flexible credit policies with the possibility to fix interest rates for 20 or even 30 years. This can also be extended to diversification enterprises that can be done underneath the hat of agriculture, Mr Ashbridge added.

The all-important data

As banks need to lend responsibly, however, data is absolutely crucial when it comes to negotiating the best terms for farmers. “In the early 2000’s, the due diligence process wasn’t nearly as robust as it is today,” Mr Ashbridge noted.

When working with clients looking to borrow, he added: “Our interest will be to look back at least three years, possibly five, to see financial accounts, to analyse those, to dig into not just the financial performance but the physical performance of yields, cost control, as well as the human side of having the right people employed and the positive and negative impact they make.

“We are under considerable pressure to gather the right data and present it in a way that lenders can easily absorb and convey to their credit underwriters, will deliver better terms, structure and better options all around,” he stressed.

Collecting sufficient data may mean that farmers will have three to four lenders to choose from rather than one, which implies a greater chance of one lender offering fundamentally different terms that suit the individual needs of the farm business, Mr Ashbridge explained.

Interest rates and the long-term cost of money are also key aspects to consider when making an investment. Since the highs of 1996, interest rates have shown a downward trend falling from above 8% to under 1% in 2020, with the lowest point coinciding with the rollout of covid vaccination.

“Now with base rates having moved up quite considerably, even with the underlying cost of money higher, interest margins could compress, so we may be seeing more pricing sub 2% margin,” Mr Ashbridge said, adding this may present an opportunity to fix rates and let inflation ‘repay’ the debt.

“Over the long term, inflation can be a sign partner in repaying debt,” he pointed out.

“The more rapidly your asset base increases in value, the more dramatically your debt is depreciated – may be an adjustment to our mentality over how we see debt.”

“Taking no risk at all is a risk in itself”

Addressing how ESG (Environmental, Social and Governance), green finance and sustainability trends will impact the finance market, Mr Ashbridge said it will certainly play a part with big lenders, who will want to see those incorporated. Meanwhile, green loans are a growing opportunity for funding climate-related projects that often come with discounts on interest margins.

Mr Ashbridge added: “Change definitely brings opportunity; post-2008, we saw very significantly positive uplift in the number of opportunities that clients were looking to pursue. We certainly did much more bigger business, exciting business, and I think that (…) we’re likely to see that again.”

He also emphasized that the bank and finance market is innovative, with more lenders in the marketplace than have ever been seen before, and urged landowners to look for opportunities beyond the rural/agricultural space as there are considerable differences in the lending spectrum.

When asked how farmers can be safe in the knowledge that gaining funding is the right thing to do, he said it’s all about the investment they’re making and whether the conditions are right for the project to become a success.

“If that primary decision is handled correctly, then debt can just follow along as a matter of course, a ‘support service’,” he said. As with any investment, assessment of risk is crucial, as well as having a plan B and C in case something goes wrong.

“There’s no reward without risk, and it’s about finding the right balance for your business,” he stressed.

“Taking no risk at all is a risk in itself, in that you’re endangering the long-term sustainability of your business. You’ll go on fine for now, but you’ll be eating away at your capital base simply because you’re not producing enough profit,” Mr Ashbridge concluded.

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Mr Birchall’s guidance provides a foundation for farmers who wish to explore carbon markets as a means of diversification or to reduce their farms’ environmental impact, enabling them to build on a solid financial footing.

Selling BNG units to developers is the most direct form of capitalising on habitat creation on-farm and is always accompanied by a Habitat Management Agreement. Currently, there’s no specific HMRC guidance to follow in this area, as tax legislation is yet to catch up with the new arrangements, Mr Birchall said.

Therefore, the tax treatment of payments received for BNG units is subject to interpretation. If the farmer receives a single lump sum from the developer that is considered capital payment, the earnings will be subject to the Capital Gains Tax treatment, so long as the BNG unit is described as a payment derived from an asset (i.e. the land), Mr Birchall explained.

Otherwise, the payment will be treated as taxable income and will be subject to Income Tax. On the other hand, the distinction may be less important if the business operates as a company, as the corporation tax rate will be the same whether the payment is treated as income or capital, he pointed out.

With regards to VAT, the current HMRC view is that carbon credits are outside the scope of VAT. However, BNG units may be different as farmers must comply with the Habitat Management Agreement, which could be considered a form of service provided to developers, Mr Birchall said.

As to whether the land on which habitat is being created will benefit from Agricultural Property Relief (APR) is still a grey area due to the lack of clarity in current legislation. According to Mr Birchall, if the arrangement is simply habitat management where there is no underlying agricultural functionality of the land, then APR would not normally apply.

However, farmers can still claim APR on BNG land that is also used for agricultural activity such as grazing, he added.

Where APR is not claimable, landowners might benefit from Business Property Relief (BPR) as long as investment activities on the land don’t predominate trading activities.

“Where land is let to acquire BPR in its own right, there need to be additional activities which dominate the simple letting of land for the activity to be trading,” Mr Birchall explained.

Leasing to the Environment Bank

The Environment Bank is a company that offers farmers the opportunity to earn a secure income from habitats created on their land and share the risk of selling BNG units to developers via a third-party agreement.

As part of the arrangement, farmers are required to enter a 33-year Farm Business Tenancy Agreement with the company that outlines how the land is going to be managed over the lease term.

Kerriann McLackland, head of land (South East) at the Environment Bank, explained: “We create the new habitats, meet all the capital costs of creation, then we lease it back to you for 33 years minus a day and you carry out the management.

“The income comes to farmers in two forms: the rent that we pay for the head lease, and the management payments we pay to you to keep the habitat in the agreed condition.”

According to Mr Birchall, the rent and management fees received from the Environment Bank will be treated as taxable income. Farmers are also entitled to charge VAT on the services provided as part of the agroecological arrangements.

While the leaseback arrangement comes with more complex tax issues, it may not affect farmers’ ability to claim APR or BPR as they will still be in “occupation” of the land, Mr Birchall confirmed.

When it comes to business structuring, he noted some landowners might be tempted to house habitat creation within a separate business entity, which could provide a pathway to future family succession if assets need to be spread amongst different family members.

“However, from the perspective of BPR, it can be useful to merge all the various activities together as long as you can carefully balance the trading and investment split,” he added.

Ultimately, Mr Birchall said the way farmers decide to structure BNG activities depends entirely on their long-term priorities. If the 50/50 trade/investment split can be maintained on the BNG land, incorporating activities within one entity may present an advantage when accessing BPR from Inheritance Tax (IHT).

At the same time, farmers may choose to create a number of separate business entities for reasons such as:

• Difficulty to keep within the 50/50 split and longer-term risk of move to an 80/20 split
• May wish to ring-fence risks of certain activities so that they do not contaminate assets
• Future succession
• Access to grants and finance

While Mr Birchall said this is a viable option, landowners will need to consider the impact on IHT reliefs and the way in which the structure affects the utilisation of losses.

Woodland Carbon Units – “complicated for tax purposes”

Woodland carbon units (WCU) represent a measurable amount of CO₂ removed from the atmosphere by trees as they grow. They are a form of carbon credit typically sold on carbon markets as a way for individuals or organisations to offset their emissions and are becoming a key component in the CSR (Corporate Social Responsibility) policy of many large companies.

Mr Birchall explained WCUs are initially pending issuance units (PIUs), which represent a ‘promise to deliver’ a WCU in the future. These units are held in the UK Land and Carbon Registry, which checks the performance of projects every ten years. At each of these points, PIUs are converted to WCUs if the project is performing well.

The sale of WCUs is likely to be regarded as income receipts, with the key tax issue being whether they benefit from “commercial occupation” woodland tax exemption. Mr Birchall said the main deciding factor is whether the income is viewed as derived from investment or trade.

If selling WCUs is considered a form of trade, it may be relevant to reliefs such as Business Asset Disposal Relief or IHT BPR. However, simply exploitation of land to generate recurring revenue is often seen as investment, Mr Birchall said, and no definite conclusions can currently be drawn.

“The more activities you need to perform to generate that income, the more the business points towards a trading side,” he added.

Like BNG units, WCUs are also ambiguous when it comes to APR, as woodland must be “occupied with” agricultural land and “the occupation is ancillary to that of the agricultural land” for APR to apply, Mr Birchall said.

“There is also a view that if income is being generated from the woodland alone, that can no longer be considered as “ancillary” to the agricultural land as that is having a commercial use of itself.

“If APR is not available, there is IHT relief which allows the value of trees or underwood to be left out of account in determining IHT value on death,” he added.

While there is no clear HMRC guidance at the moment, Mr Birchall believes landowners selling WCUs can still benefit from BPR if they are conducting a mix of activities on that land. Moreover, if the woodland is part of a wider farm or other trading business, it should possible to benefit from BPR even if not viewed as trading activity.

Whether WCUs benefit from woodland tax exemption is also controversial. On the one hand, income that arises from a commercial woodland occupied with a view to the realisation of profits is exempt from a charge to income/corporation tax.

According to Mr Birchall, the government’s Woodland Carbon Guarantee scheme comments that the commercial woodland exemption is available on the sale of the carbon credits covered by that scheme. In addition, the Forestry Commission document, ‘Creating a new woodland; woodland carbon guarantee’, states:

‘Currently, profits arising from the commercial occupation of woodlands are not chargeable to income tax and corporation tax and the value attributable to trees is exempt from capital gains tax.’

However, no clear HMRC guidance is available as to whether the sale of WCUs is definitely covered by the woodlands tax exemption, Mr Birchall remarked.

In summary, he concluded that WCU’s are complicated for tax purposes for several reasons. For once, they could be subject to tax at 0% (woodland), 25% (corporation tax), or 20-45% (income tax).

There is also CGT uncertainty around whether selling WCU’s represent a trading or investment activity. Last but not least, the availability of APR may be in doubt in some cases, but farmers could still benefit from BPR if business is structured appropriately.

The post Tax considerations of green farming in 2023 appeared first on Farmers Guide.

The AHDB outlined its commitment to reducing bureaucracy and costs over a two-year period in the Change Programme for 2021 to 2026.

The target includes non-pay related savings of £300,000, which has been achieved via the reduction in governance costs related to the horticulture and potatoes sectors as well as the closure of a satellite office and takes into account the investment in new roles.

Commenting on the achievement, AHDB chair Nicholas Saphir said: “I am pleased to confirm we have exceeded the savings target we set ourselves. This shows we are determined to build a leaner, more efficient organisation that delivers effectively and offers better value for money for levy payers.

“AHDB has been through a radical period of change and the recent launch of the new strategies for the Beef & Lamb, Cereals and Oilseeds, Dairy and Pork sectors underpin our commitment to listen and deliver.”

Mr Saphir added the key priority of the levy board remains making a positive difference to farm businesses and helping to grow British agriculture through the services levy payers across all sectors have considered most important.

“This includes supporting farmers to remain viable despite changes to farm support, protecting the reputation of our industry, improving animal health and welfare and identifying new export opportunities,” he noted.

The purpose of AHDB, which is a  statutory levy board funded by farmers and others in the supply chain, remains to be a critical enabler, to positively influence outcomes, allowing farmers and others in the supply chain to be competitive, successful and share good practice, leading to improved business resilience and performance in the long term.

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The SFI payment scheme aims to encourage sustainable food production while reducing the environmental impact of farming. Using a theoretical model farm and applying all options that will be available by summer 2023, GSC Grays experts have calculated SFI payments could exceed historic Basic Payment Scheme (BPS) payments (£232.22/ha in 2020).

However, to achieve the higher rate, farmers must already manage the land within a regenerative system or be prepared to make the necessary investments and changes to their farming operations, GSC Grays added.

These include incorporating cover crops and companion crops within arable rotations, the widespread use of legumes within improved grassland, abandoning insecticides, investing in precision farming equipment, switching to a no-till system and establishing environmental buffer strips and plots.

Farmers must also note that payment rates per hectare will vary according to farm size, and larger farms could see some payments diluted by virtue of their scale.

Following Defra’s February announcement of six additional standards for SFI and indication of payment rates for a further 4 standards available in summer 2023, GSC Grays has put together a table showing what this means in practice.

The table (see below) is based on a 200 ha mixed farm comprising 100 ha of arable land, 70 ha of improved grassland and 30 ha of unimproved grassland with an extensive application of the SFI Standards, assuming options are maximised where possible.

It should be noted that ‘Avg. Payment’ rates for some standards listed in the table will vary by farm, as standards combine a variety of payment rates and ambition levels, resulting in varying averages. Moreover, there are still grey areas within the SFI guidance such as the requirements and confirmed payment rates of the standards to be released this summer.

Jamie Charlton, GSC Grays farm business consultant, said: “Up to now, the payment rates released by DEFRA to encourage the transition to a regenerative farming model have not provided sufficient financial incentive to justify making the switch.”

However, with further standards now on the way, he added: “ We expect to see an increase in businesses questioning whether their current farming system is the most profitable and sustainable within the new support payment structure.”

While the cost of applying these transitions will vary by farm, Mr Charlton said these must be evaluated against the possible cost-savings achieved as a result. These could include reduced fuel consumption and fertiliser use, improved water retention due to better soil health, and higher yields due to enhanced ecosystem services.

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Polling was carried out by Focal Data on behalf of Liquid Gas UK between 15 and 17 February 2023, surveying 1,012 people across the UK who live in properties not connected to the gas network.

The results have also shown 58% of homeowners living on off-grid property feel the 2026 fossil fuel boiler ban is unfair compared to the much later 2035 government ambition to phase out fossil fuels for those on the gas grid. When asked if government should abandon the policy, almost 60% responded with ‘yes’.

If current government plans are to go ahead, homes and agricultural businesses using oil, liquified petroleum gas (LPG) or solid-fuel heating systems would be unable to replace their heating system like-for-like should it break down after 2026.

The ban will affect farm buildings such as office spaces, outbuildings, milking parlors, grain stores, poultry sheds and barns. For larger non-domestic buildings, the target date for abandoning fossil fuel heating systems is even earlier, by 2024.

Research shows that the cost of replacing existing systems with an electric alternative, such as a heat pump, could cost rural homeowners between £15,000-£30,000 once retrofitting energy efficiency measures are considered.

The added concern of how to heat their homes and business comes at a time of increasing living costs for countless farmers and agricultural workers located in areas off the mains-gas grid.

Fuel poverty statistics released by Government last month (February 2023) showed that households in rural areas were almost 40% more likely to be in fuel poverty than their urban counterparts. The data also showed that for rural residents off the gas grid, over 20% are fuel poor compared to 12% on the gas grid.

George Webb, CEO of Liquid Gas UK, said: “These survey results clearly indicate that an electrification-first approach to decarbonising rural areas is both unaffordable and unfair.

“Government urgently needs to re-think its 2026 boiler ban for properties not connected to the gas grid and ensure we’re offering rural communities a choice in how they decarbonise, and ultimately, heat their homes and businesses.”

“The heating and energy needs of the agricultural sector are complex. As an alternative to electric technologies, Government should consider the benefits of renewable liquid gases, which are a low-carbon and drop-in alternative to LPG, in a mixed energy approach,” he added.

Mr Webb highlighted renewable liquid gases offer a versatile solution for hot water and space heating. “They can be used with existing LPG-ready systems across a variety of uses including livestock and crop care, glasshouses, powering generators and vehicles, with up to 90% emissions reductions.

“Renewable liquid gases offer rural communities and farm businesses greater choice and reduce the risk of financial burdens in the path to decarbonisation,” he concluded.

To learn more about renewable liquid gases, speak to your LPG supplier or visit www.liquidgasuk.org

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Stock photo for illustration purposes only.

The Chancellor of the Exchequer has announced yesterday that the Energy Price Guarantee will remain at £2,500 for a further three months, helping families and businesses offset rising costs.

Ahead of the announcement, insolvency expert Tanya Giles, head of SME business at Atradius UK, warned the withdrawal of energy support could be ‘the final nail in the coffin’ for struggling UK businesses.

The freeze on fuel duty was also widely welcomed, especially by rural communities where the fuel poverty rate (15.9%) is higher than in urban areas, according to NFU Mutual.

“Farmers and rural communities rely more heavily on fuel than their urban counterparts, whether that is using red diesel for agricultural work, or white diesel and petrol for transporting produce around the countryside,” Chris Walsh, farm specialist at NFU Mutual, said.

The rural insurer also welcomed the £200 million fund announced to repair damaged roads that are seriously affecting those driving in the countryside.

Moreover, pension changes such as the increase in pension annual allowance and the scrapping of the lifetime allowance will help farmers plan for succession, NFU Mutual pointed out.

“Pensions provide an independent source of income in later life separate from the farm, which makes it easier for farmers to gradually step away and hand over more of the day to day management to the next generation,” Sean McCann, chartered financial planner at NFU Mutual, said.

“Pensions are also normally free from inheritance tax, and many farmers use them as a tax efficient way to build up funds that can be left to non-farming children.”

Meanwhile, the decision to leave income tax and child benefit tax thresholds frozen until 2028 has caused some disappointment. “With inflation still raging, these stealth taxes will leave many people with less money in their pockets in real terms,” Mr McCann noted.

However, further support with childcare could help farming families better manage their time and workload, he added.

“The new measure by the Chancellor which will see most parents get up to 30 hours of funded childcare for nine-month-olds to two-year olds, is good news for farmers with young children, provided there are local nurseries offering places.”

Environmental land management gains further prominence

Stevie Heafford, tax partner at accountancy firm HW Fisher, shed light on some subtle changes to agricultural property relief (APR) and inheritance tax (IHT) in the Chancellor’s spring budget that might otherwise have gone unnoticed.

“It reveals that the government is organising a consultation to explore the taxation of ecosystem service markets, and the potential expansion of agricultural property relief from inheritance tax to cover certain types of environmental land management.

“The government will also restrict the geographical scope of agricultural property relief and woodlands relief from inheritance tax to property in the UK from 6 April 2024.”

Mr Heafford said this might offer some comfort to those with concerns that the increasing environmental focus in farming might restrict the availability of inheritance tax allowances.

David Chismon, partner at Saffery Champness and head of the firm’s Land and Rural Practice Group, also welcomed news of the consultation and the possible expansion of APR.

“This area has raised questions for some time and hopefully this will be the start of the process to remove the uncertainties and discrepancies surrounding this area,” he commented.

However, he warned the increase in corporation tax from 19% to 25% will be a “significant blow” to those affected, with only 10% of incorporated businesses predicted to pay the higher rate.

With regards to fuel duty, Mr Chimson said: “The freeze on fuel duty for 12 months will also be welcomed, with no RPI increase for fuel in 2023/24 but, that excepted, for unincorporated businesses there was little tangible, leaving little headroom for them for investment, or in meeting rising costs of inputs, or indeed of bringing more people into the rural workforce.

“Finally, it should be noted that government is to introduce legislation in the Finance Bill 2023-24 to restrict the scope of Agricultural Property Relief and Woodlands Relief to property in the UK.

“Property located in the European Economic Area (EEA), the Channel Islands and the Isle of Man will be treated the same as other property located outside the UK. The changes will take effect from 6 April 2024.”

A missed opportunity to promote sustainable energy

Following the announcement, Joe Spencer, partner at MHA, says the government missed yet another chance to promote green and sustainable energy:

“From the perspective of the agricultural sector this was a limited budget. The tax reliefs announced won’t have very much impact on most farmers. The Chancellor also missed an opportunity to do more to promote sustainable energy.”

He added that providing the agricultural sector with sufficient incentives to install green energy will be central to the government meeting its net zero targets by 2050, and many were hoping the Chancellor would go further in encourage investment in green technology and energy efficient solutions.

“Still, the new policy on capital expenditure relief will provide some additional relief for those intending to invest in ‘kit’ above the level of £1m,” Mr Spencer continued.

“We have to hope it applies to unincorporated businesses too as it would be hugely restrictive if it does not. This was the issue with the old super deduction, which is expiring. Many farming business operating as partnerships were unable to take advantage of it.”

The post “Some welcome news, some missed opportunities” in spring budget for farming appeared first on Farmers Guide.

Harness the right accounting software to get ahead 

The year-end process can be a daunting and time-consuming one, but Anne assures farmers that having the right tools and support can help. “With digital software, such as Farmplan Business Cloud, there is no complicated year end process to be run. Furthermore, financial advisors can be given access to run their own reports and make the required year-end adjustments directly in the software, leaving you free to get on with running your business.”

“But it’s not just about the simplicity of the year end process,” Anne continues, “Farmplan Business Cloud also allows you to take stock of all the information available to you. From analysing price trends to comparing enterprise performance, there is a wealth of information easily available to help each farm make well informed decisions going forward”. With the added function of being able to automatically bring transactions in from the bank and post them direct to the ledgers, managing money in one place has never been easier.

Stress-free digital financial management

As of April 2022, all VAT-registered businesses were required to adhere to HMRC’s Making Tax Digital (MTD) regulations.

These regulations mean businesses need to keep digital records of all transactions that make up the figures they report in their VAT return.

For farm businesses who are in their first year of using software to manage their finances, Farmplan provides reassurance that it’s not as stressful or complicated as it may seem.

“For some farms, the MTD requirement might have felt like a big leap,” says Anne. “However by making use of the resources and the support available from Farmplan the transition to MTD software will not only ensure compliance with the new rules but will also bring so many other benefits at every level of your business.”

“We have lots of experience in the farming sector and our systems are tailored to the needs of farming businesses,” Anne continues, “We are always on hand to talk to farmers, through our on-line and telephone support network”.

The post Advice for a stress-free year end appeared first on Farmers Guide.

“Providing the agricultural sector with sufficient incentives to install green energy will be central to the government meeting its net zero targets by 2050. With 11% of UK electricity demand already being met by solar, the government must harness farming to build on this success, not let it wane,” he stressed.

Although the sector welcomed the introduction of Bio-Diversity Net Gain schemes in 2021 as a means of protecting the natural environment, many farmers are confused as to how it impacts their Capital Gains and Inheritance tax (IHT) positions, Mr Spencer said.

“Clearer guidelines and legislation would empower farmers to make confident decisions and ultimately encourage greater use of the scheme.

“The sector will also be hoping for renewed assurance on the long-term security of Agricultural Property Relief (APR),” he continued, “which provides farmers with much-needed relief from IHT.”

Mr Spencer emphasized changes to APR legislation would have a fundamental impact on the industry and succession in farming businesses, should there be a requirement by the successors to fund IHT on agricultural land which currently benefits from relief.

“Within the capital allowances regime, while the super deduction is expiring on 31 March, a similar deduction for unincorporated farming businesses would be very welcome,” he added.

“Many farming businesses operating as partnerships were unable to benefit from the super deduction relief as it was only made available to corporate businesses. The Spring Budget presents an opportunity for the Chancellor to right that wrong, especially at a time when our food security is more important than ever,” Mr Spencer concluded.

Support for farming families amid soaring inflation

NFU Mutual has urged the Chancellor to thaw frozen tax thresholds over concerns that keeping income tax, IHT and child benefit tax allowances unchanged for years despite high inflation is affecting the personal finances of farming families.

In a bit to raise extra tax without being seen to increase headline tax rates, the Government has pledged to keep the thresholds at which people pay tax fixed until 2028. However, with inflation running at near 10%, this means more and more farming families are being caught in a tax trap.

Along the same lines, the freeze on child benefit tax is causing more families to repay or opt out of child benefit as wages increase to keep up with inflation. Farmers’ ability to pass assets down to the next generation is also being threatened by tax-free allowances on IHT being frozen, the rural insurer warned.

“Rising incomes and asset prices mean more and more farmers are being drawn into 40% and 45% Income tax rates, the Child Benefit tax charge, and Inheritance Tax,” Sean McCann, chartered financial planner at NFU Mutual, explained.

“Thawing some of these frozen thresholds in the Spring Budget by uprating them in line with inflation will help many, including farmers, deal with rising bills.”

While APR and Business property relief can help reduce or eliminate IHT on qualifying farms and business assets, more farming families could run into IHT tax bills on other assets such as let residential property, investments and personal belongings.

“Inheritance tax is unnecessarily complicated and ripe for reform,” Mr McCann said. “Getting rid of the myriad of gifting allowances in favour of one annual gifting allowance of £15,000 would help simplify the tax for the increasing number of families who fear being caught by inheritance tax.

“The Government could also remove the rules that wipe Capital Gains Tax on death if you claim Business Property Relief, meaning those families who sell businesses they inherit would pay CGT should they choose to sell rather than continuing to run the business.”

In addition, he urged the government to increase the amount people can accumulate in pensions without attracting a tax penalty to help farmers plan ahead for retirement and avoid being a financial burden on younger generations.

“Although farmers typically work late into life, many rely on a personal pension as an independent source of income, allowing them to gradually hand over the farm to the next generation.

“Increasing the amount you can accumulate in pensions without incurring a tax charge will help farmers plan how best to hand the farm down to the next generation,” Mr McCann concluded.

With the cost of living crisis still ongoing, NFU Mutual Farm Specialist Chris Walsh said deferring the planned 5p rise in fuel duty and extending the current energy price guarantee for households would help the finances of farmers and rural communities.

“Farmers are facing rising input costs, and rely heavily on fuel to get food from farm to fork.

“Deferring the planned 5p rise in fuel duty for another year will help reduce additional costs to farmers,” Mr Walsh said.

He added that while red diesel is commonly used for agricultural work, farmers also use white diesel and petrol to transport livestock and produce around the countryside.

“Energy bills are also proving costly,” he continued, “especially for energy intensive sectors such as horticulture so we support calls from the farming unions to extend the Energy and Trade Intensive Industries (ETII) scheme to include horticultural and poultry production.

“With 12% of rural households living in fuel poverty, maintaining the current energy price guarantee on average household bills would make a difference to people in the countryside who are struggling to cope,” Mr Walsh said.

Summarizing its recommendations on how the Chancellor could best support British farmers in the year ahead, NFU mutual has issued a five-point plan for the 2023 Spring Budget:

1. Thaw frozen tax thresholds
2. Increase appeal of pensions
3. Simplify inheritance tax but retain Agricultural and Business reliefs
4. Defer the planned 5p rise in fuel duty
5. Maintain energy relief support for rural households

NFU urges Chancellor to prioritise food production

In a letter to Jeremy Hunt ahead of the Spring Budget, NFU president Minette Batters has called for greater support for domestic food production as energy, fuel and other production costs continue to soar.

The letter emphasized the need to extend the Energy and Trade Intensive Industries (ETII) scheme to include energy intensive sectors such as horticultural and poultry production.

It also called for an extension to the current reduced rates of fuel duty, including for red diesel, and for improved support for capital investment. Specifically, the NFU is calling for the Treasury to extend the Annual Investment Allowance to structures and buildings or increase the general rate for structures and buildings to 10%, to encourage small business investment in UK agriculture.

Moreover, the NFU is asking for a delay to the implementation of Basis Period Reform for business with accounting periods that don’t align to the tax year, and for the Chancellor to amend the date from which interest is charged on additional tax resulting from the reform from when that payment is due.

Commenting on the upcoming budget, Mrs Batters said: “If the government is to halt food price inflation and help prevent further food shortages, greater support and confidence is needed for the thousands of farm businesses which are trying, but struggling, to feed our nation.”

She went on to criticise the fact that the ETII scheme completely overlooks primary food production.

“An urgent review into the ETII is needed to ensure that essential and vulnerable food producing sectors, such as protected horticulture and poultry production, do not face a cliff edge when the Energy Bill Relief Scheme ends later this month,” she stressed.

“Improving support for capital investment and extending the reduced fuel duty rates would also give farmers and growers across all sectors greater confidence, especially as the cost of red diesel remains almost 40% higher than it was last April,” Ms Batters added.

Helping farmers deliver growth and net zero

To maximise the rural economy’s potential to deliver growth and help the government reach its net zero targets, Gail Hall, partner at Warners Solicitors, shared some suggestions for the upcoming spring budget.

When it comes to modernising the agricultural sector and promoting growth, she said a simplification of capital allowances would be most welcome. This could be achieved by extending the UK Annual Allowance of £1 million to include buildings and structures, which would stimulate investment in agricultural buildings and equipment and infrastructure.

Business rates should also be reviewed, she continued, as despite the changes in 2022, they place a burden on the rural economy. “The Small Business Rate Relief ceiling could be lifted to £15,000, the multiplier could be permanently frozen and rates on empty properties could be abolished.”

Moreover, since many farmers have diversified into tourism, Ms Hall said a permanent reduction to 12.5% VAT for accommodation and attractions would help businesses bounce back after Covid and build long-term resilience.

She also called on the government to bridge the rural-urban digital divide by providing digital connectivity in rural areas, which is vital for the vital for the rural economy to fulfil its potential and would increase productivity.

In terms of delivering net zero, Ms Hall urged the Chancellor to restate his guarantee on APR and Business Property Relief.

“Many farmers are thinking about taking some of their land out of agricultural use to deliver environmental objectives. Biodiversity, tree planting and carbon sequestration can help meet the government’s public goods objectives, but the crucial thing is for farmers to know that their land will still qualify for inheritance tax reliefs.”

She also urged the government to consider helping residential landlords and homeowners decarbonise their homes.

“There has been low uptake on government schemes (Green Home Deal and Home Upgrade grants). Low carbon heating devices like air source heat pumps are not as popular as expected,” she noted, posing the question, “Could government allow landlords to claim capital allowances for this?”

Lastly, Ms Hall remarked the zero VAT rate for energy saving materials until 31^st March 2027 doesn’t go far enough in incentivising homeowners to opt for energy efficient installation works. She explained the rate only applies to installation of qualifying energy materials and not where the materials are purchased separately.

Therefore, when energy saving materials are installed at the same time as other works are carried out on a residential property by the same contractor, the benefit of zero rate on energy saving materials is denied. To avoid energy efficient installation being seen as an additional cost to overall refurbishment, Ms Hall suggested taxing each element of the materials separately.

The post Spring budget 2023: Policy reforms needed to back British farming appeared first on Farmers Guide.

For nearly a decade, the British Free Range Egg Producers Association (BFREPA) has been hitting the road each year to meet members and get their feedback on some important projects that aim to improve egg prices and contracts available to producers.

This year’s Wales meeting, taking place in Llandrindod Wells on 2^nd March, saw around 30 producers gathered to get the latest scoop on egg prices and contract agreements and offer their input to ADAS and BFREPA.

Following a brief welcome by the association’s vice-chairman Trevor Sellers, ADAS livestock consultant Fede Monte presented how monthly costings are calculated for the industry and invited members to offer their views on how the figures can be improved.

The BFREPA costings have been compiled independently by ADAS for the past nine years, originally for benchmarking purposes, and are updated every month. They are being used increasingly by the government, retailers and packers in monitoring the egg supply chain and developing improved egg supply agreements.

At present, the costings are based on the following financial indicators:

• A multi-tiered unit housing 32,000 birds
• Eggs per bird housed to 76 weeks: 335 (average), 348 (high-performing)
• Feed consumption gm/bird/day: 126
• Mortality rate: 8%
• Capital investment per bird: £42.00
• Producers capital investment: £1,344,000
• Annualised margin per bird: £1.13
• Year 1 – return on capital: 2.7%

Ms Monte explained that, to provide producers with a clearer picture of egg prices, the costings now also show the price/dozen eggs as well as the usual £/bird format. Moreover, certain costs that are more volatile, such as feed, pullet and electricity prices, are reviewed more frequently than others.

To account for the high variability in the industry, the costings show prices for both average and high-performing flocks (top 25%). While they might not feel representative to many producers, ADAS has been working hard to provide accurate figures for the industry as a whole. Taking more averages would mean retailers could choose the ones that are right for them when it comes to contracts, putting producers at a disadvantage, Ms Monte added.

With regards to capital investment per bird, the £42 figure is based on an existing establishment that was built 5-10 years ago, Ms Monte explained. She acknowledged that startup cost for a new entrant today would be around £2 million with £50/bird capital investment, and said ADAS is looking at creating a budget for new producers coming into the industry.

Highlights from March 2023 costings

Based on discussions with UK pullet rearers representing 70% of the industry, ADAS has calculated an average price of £5.24 for birds at 16 weeks of age. Ms Monte noted the price is low at the moment and is going to go up in over the coming months.

Meanwhile, feed prices stand at £369.73/tonne on the sheet, equivalent to £19.57/bird or 70.09p/doz in an average flock. In response to comments from the audience, Ms Monte clarified the prices are a mere snapshot of the time ADAS calculated them and not the real-time figures.

Bird feed price change over the last 12 months based on ADAS costings.

In terms of labour, the latest costs issued by ADAS are £2.77/bird or 9.93p/doz based on two full-time equivalent staff working 7 days a week, receiving just over national living wage. The calculations take into account holiday replacement (extra 11%), NI and pension contributions but not sick pay, Ms Monte said.

She added, that as with other costs, there is a lot of regional variation, and the figures will inevitably be too high or too low for some producers.

Meanwhile, electricity cost excluding renewables was calculated at £1.36/bird or 4.87p/doz based on a usage of 4KwH/bird. According to Ms Monte, the unit price of electricity has been extremely volatile in the last few months, but has stabilized somewhat recently.

From the remaining costs, she highlighted the price of insurance (£0.30/bird or 1.07p/doz) is not currently representative, as it doesn’t include coverage for avian flu (AI). She added future costings will include a separate line for AI and potentially salmonella insurance.

With all 20 cost items, total input costs for March 2023 came to £36.84/bird or 131.98p/doz when depreciation and interest were added in. Due to egg prices having gone up an additional 10p in the last month, ADAs has finally been able to show a profit for the first time in seven years, Ms Monte announced.

The graph below shows how the cost of production (green) and return (red) figures have changed over the last 12 months, up to February 2023. As of March, the figures have crossed over, showing a profit of £0.36/bird or 1.30p/doz.

Cost of production and return figures in the free range egg sector over the last 12 months. Credit ADAS

Ms Monte highlighted that input costs for free range egg producers have gone up 17% and returns 35% since January 2022, when the difference between costs and returns was around 22p/doz.

Moreover, the industry saw the highest losses to date (41.18p/doz) in May/June last year, when average input costs were at an unprecedented 134.94p/doz with returns as low as 93.76p/doz.

Part of the reason for the increase in egg prices, vice-chairman Trevor Sellers said, is BFREPA making the case for producers and pushing for higher prices throughout the past year. As a result, he concluded the industry is “not too far out on costings”, which shows promise for the future and will hopefully bring more new entrants into the sector.

Now is the time to negotiate for better contracts

Once the discussion on costings wrapped, BFREPA CEO Robert Gooch provided members with an update on Defra’s informal review of contracts in the egg supply chain and recent progress on improving producer contracts.

He also asked members to share their preferred types of egg supply agreements so BFREPA can make more of those contracts available to producers.

Mr Gooch stressed the importance of bedding ADAS costings into contracts, so packers and retailers are aware of where producers stand financially and a healthy margin can be agreed upon. Hence, it is vital that costings remain accurate and relevant to the industry so full credibility can be claimed, he added.

As part of their campaign for higher egg prices, BFREPA has been working closely with the farming and retailer press on making producers’ voices heard. Now that prices are going up, Mr Gooch said the aim is to lock them in to avoid a repeat of last summer.

“The question now is, how we get lock in using those costings as a basis for a sustainable, long-term future for free range egg producers and production,” he said.

According to the CEO, costings will be increasingly important in the transition to Cost of Production (COP) contracts in the future. These contracts are highly advantageous for producers, as contractors are required to pay for all of the allowed expenses in addition to a payment to enable profit.

Mr Gooch said the industry is seeing more and more COP-type contracts being offered and emphasized farmers should take advantage of the current shortages to negotiate for better contracts.

At the time of writing, contracts available to producers include:

• Variable price
• Fixed price
• Feed tracker
• COP tracker
• Bed & breakfast – only available from one packer so far

Elaborating on B&B contracts given they are quite new to the industry, Mr Gooch explained they reduce the risk to producers and include electricity, post clean down, audits, AI insurance as well as depletion and inflation. Meanwhile, items excluded from the agreement include litter, shed clean down, general insurance, biosecurity and chemicals, amongst others.

In addition, B&B contracts also have a bonus structure that rewards farmers for higher performance.

“One of the downsides is you can’t sell your own eggs at the farm gate, but you can buy them back at cost price from the packer and sell them at the gate once they’re fully packaged and ready to go,” Mr Gooch explained.

He also reminded members that contracts should be tailored to the risk profile and gearing of individual businesses. While the risk goes down when choosing contracts further down the list, these agreements might also bring lower returns, he added.

Once again, the CEO encouraged members to only sign contracts that suit their needs, as packers are currently desperate for supply and are keen to offer producers what they want.

“Please use this time to negotiate and push for what you want and don’t feel like you have to sign anything that you’re not completely happy with.”

While egg shortages are forecasted to last beyond the next 12 months, Mr Gooch cautioned that production will eventually go back up and urged members to choose contracts wisely.

“Although we’re making a profit now, there are a lot of sheds empty at the moment, and it’s likely eggs are going to be cheaper again next year,” he remarked.

With the poultry sector being in a constant cycle of ups and downs, it is ultimately the producer’s view of the future and risk tolerance that determines what type of contract they need, Mr Gooch pointed out.

Due to the volatility of prices, long-term variable price contracts are most likely to be susceptible to making losses for farmers. Whereas, fixed price contracts can guarantee a margin for the duration of the agreement, allowing producers to plan their business accordingly, he explained.

In his closing remarks, Mr Gooch established there is a crisis of confidence about contracts among free range egg producers, and BFREPA wants to make sure contracts are improved in the near future. He said retailers are more and more keen to realigning the supply chain and communicating more with producers about their needs.

A healthy margin is paramount for long-term sustainability

Members gathered at the BFREPA meeting in Llandrindod Wells agreed a healthy, stable margin is needed rather than ups and downs for free range egg production to be sustainable in the UK. Some called for an average egg price of at least £1.50/doz, others expressed the need for a margin as high as 25%.

One member also pointed out the UK has one of the lowest demands for eggs in Europe, with a figure of 199 eggs/person/year as opposed to the 230 average. Therefore, the question was raised, “How could free range eggs be better promoted to UK consumers?”

Addressing the question, Mr Gooch said BFREPA has been conducting a small campaign trying to promote eggs, however, it’s dwarfed by the campaign of the packers organisation BIC that has invested £2 million into the cause so far.

Concerns regarding cheap imports and products such as plant-based eggs flooding the market were also raised during the discussion. BFREPA vice-chairmen Trevor Sellers said retailers are currently importing Italian and Polish eggs, and there’s a real risk of British producers suffering further losses if those countries manage to eliminate avian flu first.

Finally, he urged members to prepare for a potential oversupply in the market and take steps to improve their production and business resilience in the time between.

The post A first in 7 years: ADAS costings show profit for free range egg producers appeared first on Farmers Guide.

1. Make full use of capital allowances.

The super deduction, for limited companies, is available until 31st March 2023 and allows 130% of the cost of qualifying capital purchases to be deducted from profits before tax. In addition to the super deduction, there is also the Annual Investment Allowance (for qualifying plant and machinery expenditure up to a maximum of £1m in the tax year) and 100% First Year Allowances for certain eligible plant and machinery, neither of which are restricted to limited companies. These can provide 100% relief for the cost against taxable profits. If you think you may be eligible for any of these reliefs and are considering a purchase, it is worthwhile discussing with your advisor to make use of these reliefs before 31st March/5th April.

2. Maximise pension scheme contributions.

Tax-free pension contributions can be made to provide relief against an individual’s tax bill, up to the value of their annual earnings in the tax year, capped at £40,000 and tapered for high earners. Any unused annual allowance from the previous 3 tax years can be carried forward and used to make additional contributions. There is also a pensions lifetime allowance to be considered. Check whether you have available unused allowances from previous years before they are lost and make contributions to maximise tax relief before the end of the tax year.

3. Consider changing your business year-end.

The way that sole traders and partners in partnerships are taxed on their profits is due to change from 6th April 2024. There will also be a transitional year from 6th April 2023. From 6th April 2024, sole trade and most partnership profits will need to be time-apportioned and matched to the tax year. Sole traders and partnerships can choose whatever business year-end they wish and currently it is the profits for the year-ending on that date in the tax year that are taxed in that year’s return. In the future, where business year-ends do not coincide with the tax year, there will be additional adjustments needed and associated greater tax compliance costs. Furthermore, there is the potential for profits to be taxed sooner under the new rules. Sole traders and partners should therefore consider aligning their business year with the tax year.

4. Utilise capital gains allowances.

From 6th April 2023, the capital gains annual exempt amount for individuals will be reduced from £12,300 to £6,000 (to be reduced further to £3,000 from 6th April 2024). In the case of capital sales it should be considered whether they can be made before the end of the tax year to take advantage of the greater annual exemption and also whether assets can be transferred between spouses at nil gain/loss, before disposal to a third party, to make use of two annual exempt amounts.

5. Reduce income payments on account if possible.

Farm businesses that make up their accounts to 31st March should now have a clearer picture of their trading position for the year. If the taxable profits are likely to be less than in the 2021/22 tax year, it may be possible to reduce the income tax payments on account for the 2022/23 tax year and either obtain a refund of part of the payment already made before the end of January 2023 or reduce/eliminate the payment due by 31st July 2023.

Martyn Dobinson, partner at Saffery Champness, comments: “There is still time for taxpayers to consider these opportunities and to take action before the end of the tax year. It is also good practice to get into the habit of undertaking an end of year financial health check each year.”

The post Five top tips to help year-end tax planning for estate and farm businesses appeared first on Farmers Guide.