SUCCESSION PLANNING. MAKING TAX DIGITAL The government s plans. BPS PAYMENTS A quick check. LIFE AFTER BREXIT Working together

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1 ISSUE 19 Autumn/Winter 2016 MAKING TAX DIGITAL The government s plans SUCCESSION PLANNING BPS PAYMENTS A quick check LIFE AFTER BREXIT Working together MILK Production reduction scheme

2 2 LIFE AFTER BREXIT Prior to the referendum the debates were heated and at times bad tempered, now the industry has to work together to make the best of post EU Britain. Farming organisations have been arranging a series of meetings and policy documents and engaging with members to discover what post Brexit should mean for the farming and the rural community. They have been making sure agriculture is on the agenda when it comes to trade negotiations. They need to hear from farmers about the risks and opportunities that are perceived and explore how these can be managed. The government are asking for input on what farming policy should look like once we are out of the EU. The industry will want to maintain some level of government support but will this be forthcoming from a more urban focused population than Europe as a whole? While SFP is protected at least until 2019 because our exit date is unlikely to before this, for many businesses it makes up more than their profit. Farmers are going to need to consider long and hard how they will manage with lower or no payments in the not too distant future. Maybe payments will have a more environmental focus, but what hoops will need to be jumped through, at what cost to comply? Making your business stand alone without subsidy is more critical than ever. Innovative business plans, harnessing efficiencies, looking at diversifications are all on the cards; in short emphasis on making your assets provide a better return on the capital that is invested. With such scant information on what Brexit will mean, it would be unwise to downplay it; even though reports that the economy is bouncing back after the initial shock of the referendum result, especially as farming fortunes are usually counter to those of the general economy. It is important to remember that we are currently still members of the EU and there is no predicting what the impact will be on businesses once the trade deals are finally hammered out. If you would like help with putting together business plans, or exploring your options, please speak to us.

3 BPS PAYMENTS - A QUICK CHECK George Whittaker of Laurence Gould Partnership has put together this useful guide to checking that farmers have been fully paid for Given the computer problems suffered by the RPA a review of your own situation may pay dividends. Laurence Gould s experience is that a large proportion of farmers were underpaid for their 2015 BPS claim by the Rural Payments Agency (RPA) and do not realise. The RPA are only checking payments made when they are notified that an error has occurred. The RPA are now making payments to address incorrect amounts received for the 2015 scheme year. A quick check for 2015 BPS payments, for claims over 2000 (including greening) but under 150,000 (excluding greening) for non SDA claims can be made as follows: Expected Payment = (Area in Ha x / ha) Please note this figure will not be exact but will give a good guide as to the correct figure. Use the area claimed on your 2015 form assuming you had sufficient entitlements available for Common areas that have caused incorrect payments include: RPA mapping changes - Incorrect/delayed RPA interpretation of RLE1 forms Greening miscalculations - Greening penalties incorrectly applied Greening exemptions - RPA not applied exemptions, particularly organic RPA changes of land use codes Commons - Delays in payments and accuracy Missing fields - RPA incorrectly excluding fields on claims Random unexplainable errors If you would like to discuss any of these issues further, please contact George Whittaker on

4 4 SUCCESSION PLANNING In some families this is a very difficult topic; in an ideal world succession will be a subject freely and openly discussed. However, invariably life is more complicated than that. Different members of the family have different expectations and these can only be managed if they are out in the open. Sometimes problems are not as enormous as maybe the parents envisaged as their children have made pragmatic decisions to be self-supporting. The difficulties arise when more than one generation is reliant on the farm, and maybe more than one child has an interest in using the family property as a base, or they are all involved in the same business. Farmer s children are fortunate as if they have aspirations to go into business they often can use the home farm as a base to start from. In the lead up to career choices the economics of farming need to be clearly discussed; will a child coming home release the parent(s) to go and find income outside the farm (may be on a part time basis), or will the child be able to start up a business from home, with support from their business minded parents, space for storage of goods/ materials/ a workshop, maybe to a world-wide market place using the internet. This is a huge advantage over an urban child with no resources except perhaps a garage or a back bedroom. If round the table discussions are possible it saves a great deal of anxiety for all concerned. Involving someone from outside the family and having a clear agenda for your first few meetings may get ideas kick started and ensure the sensitive/ difficult subjects are aired. Case study Small scale dairying which involved the parents and their son was no longer viable. The unit, without the regular income from milk, would no longer support all 3 of them. The parents were past retirement age and wanted to spend less time having to do farm work. Plans had been kicked around the family but no decisions were reached. After a broad ranging discussion with their accountant a course of action was agreed. The plan was to stop milking and simplify the activities so the tasks could be managed by the son with father willing to help on an ad hoc basis as required. The son would look to utilise his machinery skills by obtaining a

5 5 ticket to drive site vehicles and so provide him with additional off farm income. The farm would provide them with a place to live, and they would invest in the buildings with a view to obtaining a variety of rental streams. If at a later date the son wanted to return to full time farming, or start another land based business this was still a possibility. Depending on location and resources, farms can be the centre of a great variety of income streams, the options are limited firstly by drive and enthusiasm, secondly by capital. However, you don t have to look far to see examples of determined individuals who have made successful businesses from very inauspicious beginnings. Succession is not all about tax, although the discussions can lead on to inheritance tax and capital gains tax planning. A more immediately rewarding outcome is stability and a secure future for the people involved. If you would like help with getting your succession plans in place please contact us. MILK PRODUCTION REDUCTION SCHEME The scheme, which is voluntary, pays milk producers who reduce the amount of cows milk they deliver to first purchasers during a 3-month period, known as the reduction period. This is compared with the same 3-month period in the previous calendar year, known as the reference period. There may be up to 4 reduction periods: October 2016 to 31 December 2016 November 2016 to 31 January 2017 December 2016 to 28 February 2017 January 2017 to 31 March 2017 The payment will be per 100 litres for the amount of cows milk eligible for payment. If the scheme is over-subscribed in one or more reference periods, the volume of cows milk eligible for payment will be reduced. If one of the reduction periods is full or oversubscribed, the remaining reduction periods will be cancelled. If this happens, all applications for the remaining reduction periods will be rejected. The first application period ended 21 September 2016 so you will need to check on availability before making an application. Direct sales and milk from species other than cows are not part of the scheme. How to apply Apply to join the scheme as soon as possible. More details gov.uk/guidance/milkproduction-reductionscheme-how-to-apply

6 6 CHOOSING AN ON LINE BOOK KEEPING PACKAGE With an eye on Making Tax Digital it s time to look at the features that will appeal to farmers with any online book keeping package. Generally packages come in 3 sizes. Your choice will depend on what aspects are important to you. Things to consider include:- VAT records and VAT returns Producing sales invoices for customers What book keeping system do you use recording transactions as they go through the bank, or imputing all sales and purchase invoices and clearing them via bank payments and receipts (double entry) Direct bank feed to minimise time on data entry and eliminate bank reconciliation errors Software rules to automate coding of regular transactions. Importing of purchase invoice details using additional software Timesheets and payroll records Recording expenses via an app on mobile phones Links to credit card apps so payments can be accepted using a mobile phone Stock records What reports are useful? Do you do enterprise costing (or should you now start)? Ability to record income and expenses by customer Reports based on location Profit and loss reports by enterprise, varying date ranges to suit a production cycle Budgeting Time spent designing the set-up of the software ensures that it is fit for purpose, easy to use and provides up to date management information. An appropriate code list that provides a full breakdown of key performance indicators is the cornerstone to success, followed by a clear understanding of regular routines and reconciliation of the all-important bank and VAT accounts. Online software can be accessed by you, your book keeper and your accountant; assistance can be given remotely to smooth out any issues, and everyone can look at the same data at the same time. Issues with backups or lack of them are a thing of the past. Most general packages can be set up for farming businesses and provide management information to help monitor and run the business more effectively.

7 7 MAKING TAX DIGITAL The government have plans to get tax returns to go digital and have put out 6 consultation papers which give an idea of the direction they are planning to take. In summary the main points are: From 2018 most businesses, the self-employed and landlords will need to use software or apps to keep their business records, and to update HMRC quarterly. There may be a deferment for the smallest businesses with turnover above 10,000 and exemptions for those unable to use digital tools. T here will be an exemption for all unincorporated businesses and landlords with gross income/annual turnover below 10,000. HMRC are consulting on simplifying some of the underlying tax rules to support the changes being introduced by Making Tax Digital, including extending the cash basis to larger businesses and property businesses. HMRC are consulting on introducing voluntary pay as you go for businesses and landlords using digital records There are proposals to introduce a new regime for late submission penalties, late payment sanctions and proposals to align interest across taxes. HMRC are also consulting on how more effective use of third party information can contribute to the transformation of the tax system. We are keeping a close eye on the proposals and how they will affect our clients. Over the coming months we will be able to tell you more, specifically how the change to Digital Tax will impact on you and your business. We are already using and advising on a range of software solutions that will be compliant with the proposals. Since the software is online you can access it any-time, anywhere with broadband or a Wi-Fi signal. If you are interested in making a start please talk to us.

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