BIM55130 - Farming: Basic Payment Scheme: Expenses/Deductions

S34 Income Tax (Trading and Other Income) Act 2005, S54 Corporation Tax Act 2009 

The basic rule for the deduction of expenses against the BP for a trade is the same regardless of the statute under which the charge is raised and is laid down in Chapter 4 of Part 2 of ITTOIA 2005. (In practice, the same rule also applies, so far as relevant, for non-trading BP income under Chapter 8.) In broad terms, no expense is allowed unless it is laid out wholly and exclusively for the purposes of the trade. The problem here is where there is an alternative purpose such as keeping ponies or horses for leisure purposes, as by definition there is then a dual purpose and expenditure will fall to be disallowed. If it can be shown that additional expenditure has been wholly and exclusively made to secure the BP then such can be set off to reduce the tax charge but this is likely to be rare.

The BPS provides for the imposition of penalties where the farmer fails to comply with the cross compliance conditions. However, because they are imposed by a restriction on the BP payable there should never be a need to include a penalty as a deduction in the accounts. Even in the rare circumstances where BP has been paid out and a restitution claim is lodged by the department administering the BP and the accounts have been signed off then the appropriate means of dealing with this would be by prior year adjustment where it represented a fundamental error (FRS 3 of old UK GAAP) or a material error (FRS 102).