BIM55450 - Farming: stock valuation: harvested crops: Arable Area Payments

Farmers growing cereals, oilseeds and proteins can claim subsidies under the Arable Area Payments Scheme. In order to qualify, they must set aside a percentage of the total area on which they are claiming and they are paid compensation for the area set aside.

The timing of recognition of payments under the scheme was considered in an article in Tax Bulletin, Issue 10 (February 1994). It stated that we would accept accounts in which Arable Area Payments were recognised as income of the accounting period to the extent that the crop has been sold by the balance sheet date.

Where this approach is adopted and the deemed cost method of valuation described in Section 7.3 of BEN 19 (see BIM55410) is used, valuations should be based on 75% of the total of the market value at the valuation date plus the related Arable Area Payments (including payments in respect of the required level of set-aside). The Area Payments should also be taken into account when net realisable value is computed.

The Tax Bulletin article included the following example. The figures used are hypothetical and do not relate to any particular arable crop.

Maggie is a farmer. She grows 85 hectares of an eligible arable crop and sets aside an additional 15 hectares which is the requirement for rotational set-aside. She accounts to 30 September by which time the harvest of 500 tons has been gathered, half of it has been sold off the combine at £88 per ton and half is in store. The open market value of the crop in store at 30 September is £90 per ton and stock is valued in accordance with the deemed cost method described in Section 7 of BEN 19. Maggie expects to receive Arable Area Payments of £200 per hectare for the crop and £300 per hectare for the set-aside land making a total of £21,500 but it has not yet been paid.

The accounts will include the following figures:

Sales and Arable Area Payments: £32,750 [(250 x £88) plus (1/2 x £21,500)].

Stock (250 tons): £24,937 [75% x ((250 x £90) plus (250/500 x £21,500))].