Policy paper

Revenue and Customs Brief 48 (2014): making a negligible value claim for an asset affected by Common Agricultural Policy reform

Published 12 December 2014

Purpose of this Brief

This Brief explains about the effect of a negligible value claim in relation to farmers’ Single Payment Scheme Payment Entitlement or Milk Quota.

The tax implications of the introduction of the new farmers’ Basic Payment Scheme are not considered in this Brief. Guidance for Basic Payment Scheme will be provided in the future.

Who needs to read this?

• any person that holds Single Payment Scheme Payment Entitlement and/or Milk Quota that is not dealt with in the corporate intangibles regime
• accountants and other professional representatives.

Background

The EU operates a Common Agricultural Policy (CAP) across all EU member states. The CAP provides schemes to subsidise farmers.

As part of CAP reform introduced from 1 January 2005, various farming subsidy schemes ceased and were replaced by Single Payment Scheme. As part of the introduction of the scheme, eligible persons were allocated Single Payment Scheme Payment Entitlement to allow them to participate in Single Payment Scheme.

EU member states have recently agreed further CAP reform. This includes replacing Single Payment Scheme with Basic Payment Scheme with effect from 1 January 2015.

It has also been previously agreed that the Milk Quota system would be phased out, ceasing to exist on 31 March 2015.

A negligible value claim

Where an asset has been entirely lost, destroyed, dissipated or extinguished, this is treated as a disposal of the asset for Capital Gains Tax purposes. Assuming that a gain on a disposal of the asset would have been a chargeable gain, such a disposal will give rise to an allowable loss.

A negligible value claim allows losses to accrue before the asset has been entirely extinguished. More information can be found in the Capital Gains Tax manual on the HM Revenue and Customs (HMRC) website.

Single Payment Scheme Payment Entitlement

HMRC’s view is that Single Payment Scheme Payment Entitlement is an asset for Capital Gains Tax manual purposes and so a negligible value claim in respect of an entitlement can be made where appropriate.

Single Payment Scheme will cease on 31 December 2014 and Basic Payment Scheme will replace it. However the position for Single Payment Scheme PE in England differs from that in the rest of the UK:

England

In England, the choice was made to continue to use Single Payment Scheme Payment Entitlement in Basic Payment Scheme. This means that the Payment Entitlement will not be of negligible value and HMRC will reject any negligible value claim made.

Northern Ireland, Scotland and Wales

In Northern Ireland, Scotland and Wales, all Single Payment Scheme Payment Entitlement will cease to exist on 31 December 2014. HMRC accepts that Single Payment Scheme Payment Entitlement in Northern Ireland, Scotland and Wales became of negligible value on 16 May 2014 because 15 May 2014 was the last day that the entitlement must have been held in order for a person to establish that they were eligible for a payment under Single Payment Scheme. A negligible value claim may be made to HMRC in relation to an entitlement on or before 31 December 2014, subject to the conditions for a valid claim being met.

A negligible value claim may specify that the disposal occurs at an earlier time, as long as the conditions for making a valid claim are met at the time the claim is made and at the earlier specified time. It is not accepted that Single Payment Scheme Payment Entitlement was of negligible value before 16 May 2014 and HMRC will reject a claim specifying a date before then.

Milk Quota

HMRC’s view is that each individual unit of Milk Quota should be pooled and treated as a single asset, and that the pool is an asset for Capital Gains Tax manual purposes. A negligible value claim in respect of the pool of Milk Quota can be made where appropriate.

There is currently a market for trading of individual units of Milk Quota and each individual unit of Milk Quota has a negligible value. However, as explained above, individual units of Milk Quota should be pooled into a single asset. Whether the pool of Milk Quota is of negligible value may vary from case to case.

Where a pool of Milk Quota is of negligible value and the other conditions for a valid claim are met, a negligible value claim may be made to HMRC on or before 31 March 2015.

A negligible value claim may specify that the disposal occurs at an earlier time, as long as the conditions for making a valid claim are met at the time the claim is made and at the earlier specified time. Whether the pool of Milk Quota is of negligible value at the earlier time specified may vary from case to case.

If there is any doubt whether a pool of Milk Quota is of negligible value, you should seek professional advice before making a negligible value claim to HMRC.

Position if a negligible value claim is not made

For Single Payment Scheme Payment Entitlement in Northern Ireland, Scotland and Wales, if a valid negligible value claim is not made to HMRC on or before 31 December 2014 then the subsequent loss of Single Payment Scheme Payment Entitlement will result in an allowable capital loss equivalent to the amount incurred by the person when the Single Payment Scheme Payment Entitlement was acquired.

Similarly for Milk Quota, if a valid negligible value claim is not made to HMRC on or before 31 March 2015 then the subsequent loss of Milk Quota will result in an allowable capital loss equivalent to the amount incurred by the person when the Milk Quota was acquired.

Further information

If you require further information please contact the Capital Gains Tax helpline on Telephone: 0300 200 3300.