BIM55275 - Farming: orchards
The initial expenditure incurred by a fruit farmer on the
planting, staking etc of a new orchard is disallowable as
representing capital expenditure (see CIR v Pilcher [1949]
31TC314). After the trees have been planted, all subsequent
expenditure on cultivations etc is allowable in full as a revenue
charge (see Vallambrosa Rubber Co Ltd v Farmer [1910] 5TC529).
Following Pilcher (see above) the expenditure incurred by a
fruit farmer on grubbing up an old orchard is capital in nature.
However, where there is a subsequent planting of new fruit trees,
both the grubbing and replanting expenditure is normally allowable
as a revenue deduction on a ’renewals' basis, subject to
certain conditions.
- Since grubbing and indeed planting expenditure is initially
capital in nature, a deduction cannot be claimed on the renewals
basis until the old trees have been grubbed
and the replacement fruit trees have been planted.
- Renewals treatment cannot be claimed to the extent that the
replanted area exceeds the grubbed area.
- The allowance should be calculated by reference to the area
grubbed and replanted. For example, if 10 hectares were grubbed up
and only 3 hectares planted, the renewals allowance would include
30% of the grubbing costs plus 100% of the planting costs. Not only
is this a practical approach but it also recognises the agronomy of
fruit production has changed and facilitates a full deduction even
where tree planting density has increased.
- The planting must take place within a reasonable time of the
grubbing (and vice versa) of the old orchard. It is not possible to
be definitive about what is a reasonable time since it will vary
from case to case depending on the facts but we would expect
replanting to take place as soon as is practical taking into
account agricultural advice and all the circumstances of the farm.
HMRC will accept up to 2 years as reasonable but that is not to
rule out longer periods where it is justified on the facts.
- Where the replanting takes place on different land and predates
the old orchard being grubbed up, HMRC will still consider a
renewals basis claim where the farmer or grower can show a clear
replacement link at planting and the old orchard is grubbed within
2 years of the new one being planted. Again, as in (d) above, a
period longer than two years is not ruled out where it is justified
on the facts. HMRC need to be satisfied in the circumstances of
each case that what has occurred is replacement and not expansion.
- Where a grant or subsidy is receivable, the renewals allowance
must be reduced by this amount.
Whether or not an orchard has been replaced will ultimately be a question of fact but renewals should be taken to include:
- replacement trees planted in a different field on another part of the farm; and
- where the fruit type has changed (say apples to plums).
If a farmer/grower wishes to use the renewals basis, then the onus is on them to make the claim and have the documentation available to support such. These records will need to identify the physical areas grubbed and replanted, when the work was done and the direct costs associated with each.
