Tax Shocks on Cards If Two Single Farm Payments Arrive in One Year FARMING

By DAN BUGLASS

MOST farmers in Scotland have had little cause to concern themselves over tax payments in recent years, with incomes at such a low level.

However, that could well change and some businesses could be in for a shock, following the introduction of the single farm payment.

The problem will arise if more than one year’s subsidy arrives within the 12 months upon which trading accounts are based.

MarkWilken, of Forfar accountant EQ, yesterday highlighted the potential difficulties: “For income tax purposes, the single farm payment is treated as accruing over the calendar year.”

“However, no income is recognised until the 10-month period of control is complete. Farmers had the option on the subsidy claim form of choosing a date for their 10month period of control between October 1 in the preceding year and April 30 in the year of the claim.”

According to Wilken, this leaves farmers open to a higher tax bill than they might reasonably have anticipated. In effect, they may be subject to a double tax charge in the same financial year.

He added: “If no date is specified, the default date will be February 1. Unfortunately, it was not possible for accountants to give specific advice as HM Revenue and Customs did not issue definitive advice on the tax treatment of the single farm payment until June 2005, by which time the subsidy claims had already been submitted.”

Those most likely to be hit hard are beef producers, who received a raft of subsidies under the old regime followed in quick succession by their large single farm payment cheques.

Timing of their business year appears to be key, especially if the accounts are finalised on November 30, which is a common date for livestock farmers. Wilken explained: “Where the default start date has been selected and the business has a November 30 year-end, the 10-month period of control will have been met and therefore the accounts should include 11/12ths of the single farm payment.

“In contrast, had the same business chosen March 1 instead of February 1 as the start date, the 10-month period of control would not have been completed by the year end, and no single farm payment income would be recognised in the accounts.”

He concluded: “The best advice will depend on each business circumstance and year-end date. The choice of the 10-month period has also to be compatible with any seasonal lets. Farmers need to be discussing this now with financial advisers, well before the deadline date for submitting subsidy claims for the current year.”

*Meanwhile, NFU Scotland greeted the news that Asda is to slash the retail price of milk by as much as 10p per litre in its stores with caution.

Jim McLaren, vice-president of NFUS, said: “The fact that Asda can afford to wipe out almost 10p per litre from its margin, demonstrates the remarkable amount of money being made by the supermarkets on liquid milk.

“Given that the price most dairy farmers receive is on, or below the cost of production, this move makes it abundantly clear there is enough money in the supply chain for everyone to make a living.”