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Welcome to our summer farming newsletter.

Following the announcement of the General Election I decided to hold the release of the newsletter until after the

results were known.

The opinion polls and Theresa May clearly expected an increased majority to give her direction and authority in the

Brexit negotiations. We now have a minority government and a much weaker Prime Minister who will have to come

to an agreement with both the DUP as well as her own MP’s to push through legislation and give her support in the

EU negotiations.

What was already an uncertain time has now had the uncertainty increased which makes planning decisions for

business investment all the more difficult.

In my newsletter I will focus on the areas of Making Tax Digital and the use of Information Technology,

considerations if you own investment property and the new five year profit averaging rules. We are working closely

with clients in these areas and will be pleased to discuss further.

We now approach the agricultural show season and myself and my team will be pleased to see you at any of the

following:

The Royal Cheshire County Show—20th & 21st June (you can find us in the Sainsbury's Agri Centre)

The Nantwich Show— 26th July

The Cheshire Ploughing Match— 27th September

The Brailsford Ploughing Match—4th October

Best Wishes and Regards, Suzanne Preston, 01606 369000 suzannepreston@howardworth.co.uk

Agriculture & Farming

VOL. 5 Summer 2017

Welcome to the fifth edition of our

Agriculture & Farming newsletter

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Technology—The way forward

Making Tax Digital (MTD)

HMRC are making changes to the way taxes will be reported by bringing in quarterly reporting via the Making Tax Digital

system. The proposed system is a key part of the government’s plans to make it easier for individuals and businesses to get

their tax right and keep on top of their affairs.

The system will be phased in over the next few years, depending on the size and type of business. The first businesses to be

phased in will be those with an annual turnover above £85,000.

An individual with self employment income and also rental income has two relevant sources to consider for MTD quarterly

reporting. If the total of these is below £10,000, they will currently be exempt, but if the total is over £10,000, they will be in

the system for both.

Over the coming months we will endeavour to keep our clients up to date and assist them in planning for the introduction of

MTD. We will do this by email updates and seminars. Please keep an eye out for these events or let us know if we can pre

register your interest.

Cloud accounting

Cloud accounting software is similar to traditional accounting software, but the accounting software is hosted on remote

servers, rather than on your hard drive. In cloud accounting, users are able to access software applications remotely through

the Internet. Using cloud accounting software frees the business from having to install and maintain software on individual

desktop computers and allows you to remotely access the same data and the same version of the software.

Cloud accounting provides a more secure method of storing financial information than traditional accounting software. For

instance, a computer or laptop with important information could be lost or stolen. Cloud accounting, however, leaves no trace

of financial data on company computers, and access to that data in the cloud is encrypted and password protected. You will

still need to be careful with password protection and access rights, however with the introduction of Making Tax Digital, it will

be important for your accountant to be able to access your current details in order to be able to assist as necessary with

quarterly reporting.

If you already use an accounts software package for your farming business, then cloud accounting should be available for you.

Now is a good time to check what benefits you may be able to get from a cloud accounting package, for example being able to

access information remotely can save you time and being able to share the information with us in the event of a query will

benefit you and your business.

www.howardworth.co.uk

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Broadband in the rural community

A large number of people who live in rural areas are struggling to get fast broadband, some are unable to receive broadband at

all whilst others have to cope with a slow and unreliable connection, which makes a lot of the ways most of us use the internet

day-to-day a frustrating experience for many.

For farming businesses, along with most other businesses, the internet, and a reliable broadband connection is more important

than ever before. For farmers, most of the paperwork is now completed online, for example VAT returns, cattle movement

registrations and the ability to access milk quality results, buy or sell farm machinery, obtain updated grain and feed prices, is

an important part of helping to make a successful business.

Progress is being made throughout the country and in 2011 the government set up the Broadband Delivery UK (BDUK) project,

with the aim of bringing superfast broadband to 95% of the country by December 2017.

In addition, the government has introduced an initiative to ensure that people can have access to a broadband speed of at least

2Mbps and, if they are unable to attain this speed, they could qualify for a subsidised connection. This subsidy can only be used

for the hardware and installation costs, not the subscription costs.

The introduction of Making Tax Digital is making the availability of fast broadband even more important for all businesses.

HMRC recognises that a minority of people genuinely cannot use digital tools and has agreed to legislate for an exemption.

Amongst this minority, referred to as the ‘digitally excluded’, are those who cannot engage with accounting software or apps

for reasons of remoteness of location and HMRC have suggested that it will consider exemptions on a case-by-case basis.

If you believe the quality of your broadband is insufficient for your needs, more details can be found on https://basicbroadbandchecker.culture.gov.uk

www.howardworth.co.uk

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Spam emails warning

In a world where technology advances are moving so fast, it can be easy to be taken in by spam emails, texts, websites etc. and

fraudsters are finding new and more sophisticated ways to try and obtain personal information.

One recent example is where you receive an email (apparently from HMRC), saying you are due a tax refund which will be paid

directly to your bank account……as long as you provide your bank details!

The following is from HMRC’s website in relation to phishing emails, texts and tax scams.

HM Revenue and Customs (HMRC) will never use texts or emails to:

tell you about a tax rebate or penalty

ask for personal or payment information

HMRC asks you to:

Report misleading websites, emails, phone numbers, phone calls or text messages you think may be suspicious.

Don’t give out private information (such as bank details or passwords), reply to text messages, download attachments or

click on any links in emails if you’re not sure they’re genuine.

The same advice applies to email correspondence that appears to come from your bank, from Companies House and from

other sources that may look official.

If you are unsure, play safe. Be alert when opening email messages. Don’t click on any links or open any attachments within an

email that look suspicious or that you were not expecting. You can contact any member of the team who will be happy to help

to find out if correspondence is genuine and if not, we can help you to report the issue.

www.howardworth.co.uk

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Property investors

Let property interest relief

If you receive rental income on residential properties, the amount of tax relief you are able to claim on your mortgage interest

payments may be restricted from April 2017. Prior to this date, landlords were able to deduct all the mortgage interest from

their property income to arrive at their property profit, so if you were a higher rate tax payer, you would obtain tax relief at the

higher rate.

Going forward, landlords will just receive a basic rate (20%) reduction from their income tax liability for these finance costs.

This is being phased in over the next four years and landlords will be able to obtain relief as follows:

In 2017 to 2018 the deduction from property income will be restricted to 75% of finance costs, with the remaining 25%

being available as a basic rate tax reduction

In 2018 to 2019, 50% finance costs deduction and 50% given as a basic rate tax reduction

In 2019 to 2020, 25% finance costs deduction and 75% given as a basic rate tax reduction

From 2020 to 2021 all financing costs incurred by a landlord will be given as a basic rate tax reduction

The above changes won’t affect the tax relief available on farm business loans.

We are advising clients where alternative structures for owning property might be appropriate. If you wish to discuss these

changes, please let us know.

Wear and Tear Allowance

The Wear and Tear Allowance for fully furnished properties has now been replaced with a relief that enables all landlords of

residential dwelling houses to deduct the costs they actually incur on replacing furnishings, appliances and kitchenware in the

property.

The relief given will be for the cost of a like-for-like (or nearest modern equivalent) replacement asset, plus any costs incurred

in disposing of, and less any proceeds received for, the asset being replaced. You will not be able to claim the initial cost of a

completely new (ie non-replacement) asset.

This deduction will not be available for furnished holiday lettings because capital allowances will continue to be available for

them.

www.howardworth.co.uk

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Stamp duty land tax (SDLT) when you buy additional residential property

You may need to pay higher rates of Stamp Duty Land Tax if you buy an additional residential property for more than £40,000

and this applies to companies as well as individuals.

The higher rates of SDLT apply from the 1st of April 2016 on purchases of additional residential properties, such as second

homes and buy-to-let properties. Where applicable, the higher rates will be 3% above the standard rates of SDLT that apply to

purchases of residential property. Each rate will apply to the portion of the consideration that falls within each rate band.

If you sell your main home after you purchase your new home you’ll need to pay the higher rate initially. You can claim a

refund of the higher rates if your old home is sold within 3 years of buying your new home.

If you are thinking of purchasing an additional residential property and would like further information on the SDLT implications,

please contact us to discuss this.

Land Transaction Tax in Wales

From April 2018, Land Transaction Tax (LTT) will replace UK Stamp Duty Land Tax (SDLT) in Wales. The proposed tax rates and

bands will be announced by October 2017.

The legislation is expected to be broadly consistent with SDLT, to provide stability and reassurance to businesses and the

property market. The higher rates of SDLT will continue in the new act.

VAT and partial exemption

A business cannot normally claim input VAT on costs that relate to activities that are exempt from VAT (eg costs related to buy-

to-let properties). However, if the input VAT amounts fall within certain limits, you may be able to claim the VAT element by

using the partial exemption de minimis rules.

It may therefore work in favour of a business that has two activities and where the second activity generates exempt income

(such as buy-to-let rental income) where this is a smaller part of the overall business activity.

At the end of the VAT year, an annual calculation must be done to confirm whether or not you are within the de-minimis limit

for the year. If you are below the de-minimis threshold in the annual calculation then all the input VAT incurred in the year can

be recovered, including the input VAT attributable to exempt supplies.

If the de-minimis limit is breached on the annual calculation, then the input VAT attributable to exempt supplies would become

repayable to HMRC, by way of the annual adjustment.

You can be treated as fully taxable in any tax period if the total value of your exempt input tax is not more than £625 per

month on average and half of your total input tax in the relevant period.

Under the correct circumstances, there may therefore be scope to claim up to £7,500 (£625 per month x 12 months) in input

tax in an annual period.

www.howardworth.co.uk

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Annual tax on enveloped dwellings (ATED) and the effect on farming companies

ATED is an annual tax payable mainly by companies that own UK residential property valued at more than £500,000. If you

have a farming company and have a residential property held by that company (which could be the farmhouse), you will have

to complete an ATED return.

You’ll need to complete an ATED return if your property:

Is a dwelling

Is in the UK

Was valued at more than £500,000 on 1 April 2012, or at acquisition if later, for returns from 2016 to 2017 onwards

Is owned completely or partly by a:

Company

Partnership where one of the partners is a company

Collective investment scheme - for example a unit trust or an open ended investment vehicle

Returns must only be submitted on or after the 1st of April in any chargeable period.

Relief for farmers

There are reliefs and exemptions available, which may mean you don’t have to pay any ATED, so at least there is some good news for farmers. For farmhouses, relief on ATED is available where the property is lived in by an active farmer or farm worker for the purposes of the farming trade.

You should also be able to claim relief for your property if it is let to a third party on a commercial basis and isn’t, at any time,

occupied (or available for occupation) by anyone connected with the owner.

However, even if you qualify for any reliefs, you will still have to submit an ATED return.

If you feel this may impact you, please feel free to contact us for further guidance.

www.howardworth.co.uk

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Grazing arrangements – Allen v HMRC

The uncertainty as to whether a landowner is a farmer or a landlord for tax purposes continues, with several recent cases on

the commerciality of trading activities for farmers.

Case Law has long indicated that the landowner must physically manage the land to qualify for business tax reliefs.

There has been a useful decision in a recent case known as ‘Allen’, which has helped clarify the capital gains tax position on

grass lettings and what constitutes trading or investment activities by the landowner.

Although Allen related to a form of grazing agreement unique to Northern Ireland, it is useful as most of the points raised can

be related to grass letting generally and are relevant to claims for Entrepreneurs’ Relief and Rollover Relief for capital gains tax

and Business Property Relief (BPR) and Agricultural Property Relief (APR) claims for Inheritance Tax.

The land in question related to a 10 acre parcel of land, which had been in grass for some 30 years, and let to a neighbour for

grazing and silage between 17 March and 1 November each year for a number of years in exchange for an annual payment of

£1,000. The arrangement allowed the grazier to spread manure but he could not apply his own fertilizer on the land, and was

to keep his stock under control and remedy any minor damage caused by them. During the winter months, the land was

occupied by the landowner for his own animals sold in the market year-round.

HMRC had stated that the grazier had sole occupation of the land and therefore the owner could not be in occupation. The

tribunal rejected this based on the evidence of responsibility and element of control that Mr Allen had of the land.

The critical factor in arriving at the decision in the case was that the taxpayer retained responsibility for the husbandry of the

land. Specifically, this included the application of fertilizer, the supply of water, maintaining the land and fencing, cutting the

weeds and the hedges. Mere acts of maintenance, such as hedge cutting only, would not be treated as husbandry .

Whilst the outcome of each case will depend on the facts, having a robust grazing licence in place, and following it is becoming

evermore crucial in obtaining APR and BPR for Inheritance Tax or Entrepreneurs’ Relief and rollover relief for capital gains tax.

A typical grazing licence will let land for less than 364 days but usually only grants rights of access over the spring and summer

months. In the event the land is let for more than 365 days it is likely to be seen as a tenancy as it will be the tenant who

becomes in occupation of the land. Grazing licences should really be a formal written agreement rather than an informal oral

agreement.

If you are a landowner and operate any grazing licences and would like us to review them in light of the above case, please let

us know.

Northwich Office:

Drake House, Gadbrook Way, Gadbrook Park, Northwich, Cheshire,

CW9 7RA T: 01606 369000 || F: 01606 369010

www.howardworth.co.uk

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Five year profit averaging

For many years now, farmers have benefitted from being able to average profits over a two year period. This has helped a

number of farmers in times of fluctuating profits by spreading these profits over two years and helping to ensure their tax

liabilities are minimised.

From the 2016/17 tax year, profits can be averaged over a five year period, but there is still the option of averaging over two

years if this is more beneficial.

The conditions that have to be met for five year averaging is that the profit of the current year is less than 75% of the average

of the previous four years profits or vice versa, or that the profit in one or more year is nil.

As with the two year profit averaging, you are not able to average with the first or last year of trade.

We are now looking closely at our clients taxable profits from 2012/13 (the earliest period available for five year averaging) in

order to look at any tax savings that may be available. This can also have a positive effect on our clients’ short term cash flow

which will hopefully benefit their business.

If this is something you would like to discuss further please do contact us.

www.howardworth.co.uk

Richard Barnett

T: 01606 369 000

E: richardbarnett@howardworth.co.uk

Suzanne Preston

T: 01606 369000

E: suzannepreston@howardworth.co.uk

For help and advice please contact one of our Agricultural Specialists.