While trade talks continue as we head towards the 31 December Brexit deadline, many Scottish farming businesses will be concerned about future markets and the potential consequences of higher trade barriers post Brexit. Deal or no deal, either outcome is anticipated to have long-term impacts on the agricultural sector. Although the impact of the negotiations cannot be determined at this stage, we can support Scottish farming businesses to strengthen business resilience, develop greater flexibility and build capacity to better cope with change.
Through the Farm Advisory Service (FAS), Scottish farmers and crofters can access up to £1,000 worth of funding from the Scottish Government to develop a business resilience plan with the help of a FAS approved adviser. A resilience plan is a diagnostic tool designed to assess the ability of your business to deal with changes in the supply chain or change within the wider market.

The approved adviser will work with a participating business to:

• establish key performance indicators for financial resilience and analyse enterprise exposure;
• analyse business exposure to risk;
• assess profitability and cash flow;
• review the ‘health’ of the balance sheet.

A business resilience plan will highlight any issues you may face in the future, but you need to have a plan in place to address them. The ideal tool for doing this is an Integrated Land Management Plan (ILMP) for your farm. Prepared by an expert adviser, an ILMP will identify opportunities and cost savings for your business, and include a step-by-step, action plan to address challenges and build more resilience to future changes.

To apply for business resilience support, please visit www.fas.scot/specialist-advice/

To receive a hardcopy application pack, please contact FAS by calling 0300 323 0161 or emailing advice@fas.scot.

Update (November 2020)

HMRC’s stated ambition is to become one of the most digitally advanced tax administrations in the world, and the programme is well underway – many farmers will now be registered for MTD-for-VAT’.  It doesn’t stop here though!

The first launch of MTD saw VAT registered businesses with a taxable turnover of over £85,000 (excluding subsidy income) having to maintain their VAT records digitally, and submit their VAT return using software which is directly linked to HMRC.

The next stage is that those businesses whose taxable turnover is below £85,000 will be required to follow the MTD rules for their first VAT return starting on or after April 2022.  Those larger businesses who have already done this will be able to confirm that this isn’t as daunting as it sounds, and there are several very good software options available.  The best time to switch system is at your year end, so it pays to think ahead.

What will be coming after that?  The first two stages involve VAT registered businesses.  The plan after that is that self-employed businesses (even those who aren’t VAT registered) with business income of over £10,000 will be included from April 2023 (along with landlords with property income of over £10,000).  Whilst subsidy income isn’t considered when calculating the ‘taxable turnover’ for VAT purposes, it would be considered ‘business income’, so this stage of MTD roll out will affect all farmers whose total annual business income is over £10,000.

It can be tempting to put things off until nearer the time, but be assured that (a) there can be good reasons to move across to a new system sooner rather than later e.g. to tie in with a new financial year and (b) there are some excellent digital bookkeeping systems out there which are very intuitive to use and can significantly reduce the time you spend bookkeeping, and increase your chances of getting everything right!

A common misconception is that the net profit shown by the annual accounts is the figure used to calculate the business’ income tax liability, but in fact this isn’t true in most cases.  When you consider how the accounts are prepared, this isn’t as surprising as you might first think…

Your business accounts are prepared in accordance with a set of international accounting standards which are intended to provide consistency in how financial accounts are presented across the world.  However every country has its own tax regime, and the tax rules can change very frequently.  Therefore whilst your accounts are prepared using this relatively stable set of international accounting principles, your tax return is prepared according to the frequently changing rules of the UK tax authorities.  The two might be similar, but they aren’t identical.

In a farming business one of the most significant differences between your financial accounts and the income tax computation, is the way in which plant and equipment is treated.  In your P&L accounts the plant and equipment will be ‘depreciated’, most likely using the reducing balance method.  This means that an estimate is made of the portion of the machine’s initial cost considered attributable to that accounting year.  The calculation is designed in such a way as to apportion the greatest amount to the years soonest after purchase (the rate at which a piece of equipment reduces in value reduces over time).  The ‘depreciation’ for a piece of equipment appears as an expense in your P&L account, and commonly a figure of between 15 and 25% depreciation will be used.

Whilst depreciating these assets is the internationally recognised convention when preparing financial accounts that show a ‘fair and true’ picture of the trading of the business, for current UK income tax purposes, depreciation is not ‘allowable’ and will be added back to the net profit when making tax calculations.    Businesses are instead able to use the Annual Investment Allowance (AIA), a tax incentive designed to encourage investment in plant and machinery.  The AIA permits a business to offset the full initial price of qualifying items of plant and equipment, up to an annual limit, against business profits – the business is then taxed on this (often very greatly) reduced amount.

AIA is available on a wide range of plant and equipment, including most tractors, implements, and commercial vehicles (but not cars).  The limit allowed in any tax year has fluctuated over the years but was £200,000 in 2018 before being extended to £1 million for a period of two years. This two year period concludes on 31 December 2020 after which the AIA goes back down to £200,000.

Where you are intending to invest in plant and equipment in the coming months it is essential you contact your accountant ASAP.  There are transitional rules around the reduction of the AIA which can result in allowances being lost (even if the business is still under the £200k threshold) where the year-end straddles 31 December 2020.  The timing of investment is critical and your timely communication will ensure you don’t lose out! ]]> https://www.fas.scot/news/uncertainty-the-new-normal/ Mon, 09 Nov 2020 08:48:00 +0000 https://www.fas.scot/?post_type=news&p=27981 There is a sense in the agricultural sector that Brexit preparation isn’t particularly advanced, not because we don’t understand it will have a big impact, but because of (a) the lack of certainty around the outcome, and (b) the understandable reality that nobody wants to pre-emptively make drastic changes to their business that may, in the end, be unnecessary.

Unfortunately this lack of certainty about the ‘overall’ outcome looks set to continue – regardless the outcome of the trade negotiations which are still, at the time of writing, ‘progressing’.  Even if, as many expect, a last minute deal is reached, this will be a bare-bones agreement, with much still to play for after 1^st January 2021.  The uncertainty about what will happen could span years into the future as we enter a near-permanent state of something critical or life-changing being just-about-to-happen.

Does this mean there’s no point ‘preparing for brexit’?  No, if anything the near-certainty that whatever happens there will be a significant impact on the agriculture sector means that all farmers should start taking steps now to understand what the impacts are likely to be on their business, and what this might mean in the future.  The only thing certain is that you’re far more likely to wish you’d started planning early, than wish you’d ignored it for a while longer!

We may not know exactly what the future looks like, but we do know enough at this stage to be able to forecast based on 2 or 3 possible options.  Whatever the solution is for your business, it is likely that you will have major decisions to make and the earlier you can start thinking about and ‘living with’ these various possibilities, the easier it will be to make a good decision when the time comes.

Funding is available through the ILMP for either a full review of the business (up to £3,200 of funding is available towards the cost), or for a shorter business resilience plan (for which £1,000 of funding is available).  Contact the FAS helpline for details or follow the link. ]]> https://www.fas.scot/news/updated-covid-guidance-for-farmers-crofters-and-agricultural-workers/ Mon, 02 Nov 2020 12:26:26 +0000 https://www.fas.scot/?post_type=news&p=27975 Scottish Government has just published updated guidance on measures to prevent the spread of COVID-19.  For full details see here.

The guidance is detailed and specific to agriculture and is a must-read for anyone involved in farming.  Key points of which you may not have been aware are that:

• If you have suspected symptoms, or COVID-19 has been confirmed, you need to self isolate and must not be at work.
• If you need to self-isolate you should do this at home, in your house.
• If one person in your household becomes ill with COVID-19 symptoms, everyone in your household must self-isolate.
• Employers should not ask farm workers who are isolating to come into work before their period of isolation is complete, in any circumstances.

For information about testing, and to book a test, see https://www.gov.scot/publications/coronavirus-covid-19-getting-tested/

You should make arrangements in advance with friends, family or neighbours to care for animals if required.  If you are self-isolating and need help caring for livestock you can also contact RSABI on 0300 111 4166 (7 am – 11 pm) or online at rsabi.org.uk.

FAS have a range of resources to help you make a plan:  https://www.fas.scot/emergency-planning/

The guidance includes a range of other information covering what to do if someone in your household becomes ill, sick pay, mental health and wellbeing, working safely on farms and crofts, employing people, facilities on farm, managing others on site, livestock auction marts, transport for workers and PPE.  It also contains a full set of links to useful additional information and resources.

The ‘working’ end of your computer experience is known as the operating system, this is what gives the familiar look.  The majority of farm computers run on the Microsoft Windows operating system.  There have been various versions of Windows back through the years (remember Windows 98, Windows XP, or Windows Vista?!).  Common to all these systems is that you didn’t just get the original operating system, you also got various subsequent updates which ensured that your system worked efficiently.  This was more important when it became the norm for the computer to be connected to the internet as these updates aren’t just a nuisance that your machine wants to run at inopportune moments, they’re also vital for security.  Cyber criminals are constantly seeking weak spots in the system (not unlike a canny ewe looking for a way through a fence or dyke), and the updates provided by Microsoft are the equivalent of time spent identifying and repairing any vulnerable spots in the fence.  The end of support for an operating system is akin to calling a halt on these routine fence repairs.  Keep your system secure to prevent cyber criminals breaking in.

Windows 7, a common operating system on many farm PCs, is no longer supported by Microsoft. 

Updating your computer isn’t an indulgence, it’s a key part of your security strategy for the farm.  Whilst it’s possible to have the operating system upgraded without replacing the whole machine (your local computer shop should be able to do this for you) it’s not much more expensive to replace the whole machine and get an upgrade in the process.

When you come to replace an old desktop machine (the ones in a box sitting on or under the desk) it is popular to switch to a laptop, in which case you will get the best experience from your new computer if you still have a keyboard, mouse and monitor to plug into it.  A large monitor is inexpensive and pays dividends, particularly if you are using the machine for bookkeeping.

National chains can be a popular place to buy a computer, but these may not be suited to providing ongoing support.  Now is a good time to make a connection with a local supplier who can both provide the machine initially and give you good ongoing support if you run into problems further down the line.

The Farm Advisory Service has a range of materials which can help you to improve your digital security at www.fas.scot/digital-security. ]]> https://www.fas.scot/news/grant-funding-to-help-improve-sustainability-of-scottish-farming-businesses/ Tue, 20 Oct 2020 13:14:36 +0000 https://www.fas.scot/?post_type=news&p=27614 Managing a farming business amidst local lockdown measures can be challenging, with many farmers and crofters facing ongoing market uncertainty created by the coronavirus (Covid-19) pandemic. Through the Scottish Government’s Farm Advisory Services (FAS), Scottish farmers and crofters can access funding for expert consultancy support to improve the profitability and sustainability of their farming business.

Since 2016, FAS has helped over 2,500 Scottish farmers and crofters to make farming improvements that support better business resilience and improved profitability – helping those businesses to cope better with change and thrive, even in uncertain times.
FAS can help Scottish farmers and crofters access grant support for the following:

• Integrated land management plans – Open to all farming and crofting businesses, an assessment is carried out by an experienced farm business adviser of your choosing to identify opportunities and cost savings for your business.
• Specialist Advice – Funded advice to identify your business strengths and opportunities, taking a deeper look at specific issues of concern or interest with respect to your farming business.
• Carbon Audit – Get the help of an expert to assess the size of your carbon footprint and compare your performance with that of other farming businesses. Farming businesses with a low carbon footprint are often more efficient and profitable, than similar enterprises. This is increasingly a sought-after attribute for environmentally conscious consumers looking for ‘low carbon’ suppliers.’
• One-to-One Mentoring – Benefit from the valuable skills and knowledge of an experienced mentor, matched to your business needs, who can offer you vital support and guidance during the early setup and growth period of your new business.

For help and support on starting out, making business improvements or developing a clear plan for the future, contact the FAS advice line on 0300 323 0161 or email advice@fas.scot or explore our advice and grants pages in more detail. ]]> https://www.fas.scot/news/paying-for-covid-could-you-be-affected-by-the-outcome-of-the-capital-gains-tax-review/ Tue, 13 Oct 2020 10:46:28 +0000 https://www.fas.scot/?post_type=news&p=27507 On the 14^th July the ‘Office of Tax Simplification’ (the independent advisor to the government on simplifying the UK tax system set up in 2010 with the objective of offering recommendations to the Chancellor about how to make the UK tax system simpler) launched its Capital Gains Tax (CGT) review.  It will call for evidence, consider the evidence, and make recommendations to the Chancellor.  The review will consider CGT allowances, exemptions and reliefs.

Individuals or businesses who make a chargeable gain when they sell (or give away) an asset e.g. a house or a business asset such as farm land or equipment, pay CGT on this increased value.   There are a range of exemptions and reliefs available that are of particular relevance to farmers including:

• Principal private residence relief (you avoid paying CGT if you have always occupied the dwelling);
• Rollover relief (available on qualifying business assets – you avoid paying CGT if you reinvest the proceeds in other qualifying assets).

However in some cases Capital Gains Tax could be payable by a farmer during their lifetime, for example where someone intends to sell the farm or other assets and does not intend to reinvest the proceeds in qualifying business assets.

Currently the rates payable range from 10 – 28% depending on the type of asset and your own income, and there are a number of reliefs available.  However the review being undertaken now will consider both the appropriate rate to be applied in future, and what reliefs should be available.  It is thought that increasing the ‘tax-take’ through CGT will be one way for the Chancellor to balance the books after the unprecedented spending required recently to deal with the pandemic.

Many farmers won’t be impacted by changes to the Capital Gains Tax regime, however for anyone currently considering selling a business asset or residential property in the near future it is recommended that you speak to your accountant as soon as possible.  Your accountant will be up to speed on likely/possible upcoming changes, and whilst it may not be feasible to ‘outrun’ any changes to the CGT rates or reliefs, it’s better to ask the question now!