BIM55165 - Farming: particular grants which may cause doubt or difficulty

Experience has shown that the following grants may give rise to doubt or difficulty.

FARM WOODLAND PREMIUM SCHEME

Under the Farm Woodland Premium Scheme and its predecessor, the Farm Woodland Scheme, farmers receive annual payments to compensate for lost farming profits. Unlike most woodland grants, and despite the fact that the woodlands themselves are likely to be commercial woodlands and thus outside the scope of Income Tax, these payments are taxable as part of the farming profits.

APPLE ORCHARD GRUBBING UP SCHEME

Under this scheme apple growers may receive grants in respect of any trees they `grub up' (that is, dig up). Such grants are not, in contrast to payments under the Set-Aside scheme, treated as income in the growers hands. They may however attract capital gains tax liability (see CG78110 onwards).

MANAGEMENT AGREEMENTS

There are various provisions (for example, the Wildlife and Countryside Act 1981) under which farmers may receive payments for managing their land in a particular way. Where the payments under such agreements are made annually there is no doubt that the sums are income.

Sometimes, however, farmers receive a lump sum for managing their land in a particular way for a period of years. In this situation you may meet the argument that the payment is capital because it represents compensation for some sort of sterilisation of the land.

But the farmer is not prevented from using the land for the trade of farming. The management undertaken by the farmer comprises acts of husbandry and, whilst his scope may be restricted by the agreement, there is no doubt that the farmer remains the occupier of the land for the purposes of husbandry and therefore a farmer as defined by ICTA88/S832 or ITTOIA/S876 or ITA2007/S996 as appropriate (see BIM55051).

The concept of partial sterilisation was rejected by Browne-Wilkinson J in White v G and M Davies [1979] 52TC597 and the argument may be disposed of by reference to his judgement (see, in particular, page 605D and page 606B).

Farmers may also receive contributions towards specific capital expenditure under such agreements. Such sums are capital receipts.

In cases of doubt you should examine the agreement and the correspondence which led to it being made.

Environmental stewardship scheme

The environmental stewardship scheme, which includes the entry level scheme, the higher level scheme and the organic scheme is a new agri-environment scheme which provides funding to farmers and other land managers in England who deliver effective environmental management on their land. Farmers who take up these schemes enter into legally binding agreements lasting 5 or 10 years to deliver certain specific environmental benefits as defined in the agreement. Each agreement is bespoke between the farmer and the Rural Payments Agency.

The starting point in computing the farmer's taxable profits is accounts prepared in accordance with ordinary principles of commercial accountancy and HMRC agree with the Institute of Chartered Accountants in England and Wales that in the majority of cases the most appropriate accounting policy under UK GAAP is to recognise the income as accruing on a monthly basis over the whole period of the agreement with expenses matched, though practically speaking this can be accepted as being achieved as and when those expenses are incurred. Each case will of course depend on its own facts.