BIM55132 - Farming: Single Payment Scheme: Expenses

The basic rule for the deduction of expenses against the SP for a trade is the same regardless of the statute under which the charge is raised and is laid down in s.34 of ITTOIA 2005 and s.74 ICTA 1988 for companies. In practice the same rule also applies, so far as relevant, for non-trading SP income under Case VI and 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 then by definition there is dual purpose and expenditure will fall to be disallowed. If it can be shown additional expenditure has been wholly and exclusively laid out to secure the SP then such can be set off to reduce the tax charge for example someone with PE but no land may rent land with the sole purpose of activating their PE, but this is likely to be rare. Expenses which more typically could be expected are fees in preparing the claim and any money paid to lease in the entitlements.

The SPS provides for the imposition of penalties where the farmer fails to comply with the Cross Compliance Conditions. However, because they are imposed by restriction on the SP payable there should never be a need to include a penalty as a deduction in the accounts.

In the rare circumstances where SP has been paid out and the accounts have been signed off but a restitution claim is lodged by the department administering the SP, the facts of each case will need to be carefully considered. It is likely the appropriate means of dealing with this would be by prior year adjustment subject to the normal rules on prior year adjustments and post balance sheet events.