Tax guide for the agricultural industry

Farming land occupies approximately 70% of the total surface area in the UK. UK farms are pretty large compared to the rest of the EU, and agriculture is one of the most commonly evolved businesses. As such a broad occupation, farmers must keep accounts and follow the tax procedures.

Hire Tax Accountants

Work with a UK-based accountant for tax, accounting, payroll, & EIS/ SEIS needs.

Have a question? Call us on
0203 900 3500
Monday to Friday 9am – 5pm

This blog explores the taxation system for the agricultural industry in the UK, shedding light on important factors and approaches specific to the agricultural tax.

Table of contents

Important taxes to know for agricultural industry

Agricultural capital gains tax

You may be liable for capital gains tax if you sell agricultural land or additional property used in your farming business. It is a tax on the earnings from selling an asset, which applies to individuals and companies.

The taxes you’ll pay depend on factors such as the time you owned the property and your tax bracket. However, there are some tax tactics which can assist you in reducing your capital gains tax liability.

  • Agricultural property relief (APR)

The APR offers relief on inheritance tax on the agricultural value of land. It additionally covers applicable buildings and farms used with the farming land.

  • Business property relief (BPR)

Like APR, BPR applies in situations where APR isn’t applicable, but it isn’t limited to agricultural property.

You can use BPR if you have held an asset for business use for at least two years.

If you have additional assets related to the farming process, you can utilise BPR for the company; however, it cannot be used for investment purposes.

VAT

The majority of agricultural products are zero-rated for VAT purposes. It allows the reclaim of VAT on purchases without the liability to charge VAT.

Certain other “outputs” (i.e. sales) are subject to standard rating.

If you’re transferring the rights to sell milk or rent land, you usually have to pay a certain amount of VAT. However, if you’re transferring these rights as part of renting land or selling, you might not have to pay that tax.

For agricultural farmers, there’s a special VAT scheme. If you’re part of this scheme, you can’t get back the taxes you paid on things you bought, but you can add a fixed percentage (4%) to the amount you make from selling your goods, and you get to keep that extra amount.

Plant and machinery writing down allowance

Numerous farmers tend to get another form of income besides farming. To make this relief accessible, farmers must ensure an in-depth analysis of all the costs spent in the business since up to 18% of relief is available in this prospect.

It is important to note that the relief is only available for setting up important features involved into farming, but not for constructing oneself. Some of these can be:

  • an electrical system,
  • ventilating system,
  • peripheral solar protecting,
  • a cold water system,
  • water heating system,
  • air cooling or
  • air purification system.

On such features, a relief of 8% is available.

If an energy-efficient plant or equipment is proposed for setting up on the property, then in specific circumstances, 100% relief is available on purchasing those items.

Hence, one must be cautious when installing such devices to claim back the total price.

Potentially exempt transfer (PET)

A lifetime gift provided or received by a person may also qualify for APR. However, this gift is treated as a PET and is not taxed as part of inheritance if the individual who gave or received it lives for seven years after the gift.

If the gift recipient doesn’t live for seven years, some extra checks will be done, mainly if the person who gave or received the gift passes away. The amount of time the gift has been around is additionally looked at during these checks.

Inheritance tax

Currently, the land’s privilege to APR and BPR is significantly impacted by the changing trends in the usage of farm development for commercial activities. On such conditions, an inheritance tax (IHT) will be applicable.

In simpler terms, APR is a way of lowering the inheritance tax on agricultural property. This relief is crucial because inheritance tax can be very costly.

However, not all farms automatically qualify for this relief. If the property is used by an individual not actively farming, they generally can’t claim APR. Although, there are some exceptions.

For example, the person residing on the farm may still be eligible for this tax reduction if they are a retired farm worker, have a lease or contract, are a protected tenant with certain privileges, or are the spouse or civil partner of a deceased farm worker.

IHT is primarily applicable to the assets of someone deceased. Anyone with an onset of £325,000 (or £650,000 combined) or an additional verge valued up to £2 million to be passed on to their descendants may come under the entitlement of IHT.

Research and Development (R&D) tax credits

Research and Development (R&D) Tax Credits help promote technical innovation and growth in the UK agriculture industry. The project understands the importance of research and development activities in driving advancement and sustainability.

Farmers engaged in pioneering procedures in growing crops, livestock management, or agricultural technology solutions may be eligible to claim R&D tax credits.

These credits act as monetary incentives, permitting qualifying farmers to offset some of their R&D-related expenses against their tax liabilities. Farmers need to comprehend the criteria for eligibility and the application procedure fully.

By using R&D tax credits, producers receive monetary assistance for their innovative activities and contribute to the overall expansion and technological evolution of the farming sector in the UK. Creative farming methods benefit individual farmers and the industry, increasing their adaptability and resistance to changing conditions.

Hire Tax Accountants

Work with a UK-based accountant for tax, accounting, payroll, & EIS/ SEIS needs.

Have a question? Call us on
0203 900 3500
Monday to Friday 9am – 5pm

Final thoughts

Since the taxation regulations for agricultural prospects are intricate, crucial, and distinctive in the same aspect, it’s essential to speak with an accountant who has a background in the farming industry’s taxation system.

By using tax exemptions, credits, and specialised applications, farmers can maximise their monetary outcomes while contributing to the long-term viability of their operations.