Taxing times for rural business margins

IN HIS time as Chancellor of the Exchequer, Gordon Brown stood accused of introducing the most new taxes and changes to fiscal legislation in living memory.

The thoughts of most farmers are currently chiefly focused on the weather, but they would do well to consider their taxation situation, according to Susie Swift, a partner with the accountants Saffrey Champness in the firm's Inverness office.

She said: "For arable farmers, recent poor weather will impact on this year's yields and increased supply of cereals globally will affect still further the margins that Scottish farmers can achieve. Rising costs will squeeze these margins.

"Consequently, it is important to review the way in which farm and other rural businesses are conducted in order to mitigate the impact of increased costs. We are advising clients that they should do this sooner rather than later as such changes may take time to implement."

Last year's harvest proved to be a bumper event for many in Scotland with excellent yields and a near-doubling of prices for both wheat and barley. That resulted in many farmers investing in new equipment, but Swift is warning that the capital taxation implications need to be carefully considered. Spreading expenditure is her preferred option to maximise tax relief.

There has been some confusion over the "ten-month rule" with some farmers fearing that if their accounting year ended before 31 December, they could be subject to a double tax on their single farm payment – the regime which replaced virtually all previous subsidies in 2005. HM Customs and Revenue have now made it clear that this will not happen, but Swift is still urging farmers to take professional advice.

She said: "Those who might have been affected should still contact their accountant to clarify the relevant 'recognition date'. New rules on 'income shifting' due to be introduced in April 2009 also need to be considered as these are likely to affect a number of farming businesses, and arrangements that might suffer need to be reviewed and amended as soon as possible."