Farming: Single Payment Scheme: tax treatment
S5, S9, S25 and S687 Income Tax (Trading and Other Income) Act 2005, S996 Income Tax Act 2007, S35, S36, S46 and S979 Corporation Tax Act 2009, S1125 Corporation Tax Act 2010
All Single Payment Scheme (SPS) receipts are income payments subject to tax. The basis of charge will, however, depend on the circumstances under which they are received.
An explanation of the terms used in the scheme is at BIM55128.
The most straightforward situation is that of ordinary commercial farmers who continue to farm as they have for many years in that they grow and harvest crops and/or rear farm animals. Such a person continues to satisfy the statutory definition of farming for tax purposes and receives the subsidy for farming in accordance with the SPS rules. As a consequence sums receivable are chargeable as trade receipts for Income Tax purposes.
Single Payment without production
Under the SPS it is possible to receive an income without production by keeping the land in Good Agricultural and Environmental Condition (GAEC). Where there is no actual production then there can be no occupation for the purposes of husbandry and therefore no farming trade. Whether the farmer has actually ceased to farm for tax purposes will be a question of fact. One must look at the intention together with the evidence supporting the stated intention. There are several main possibilities.
- First, where only part of the holding is no longer used for production then the farm as a whole will likely continue to be worked and the farming trade continue. Similarly, where there is no production on the whole of the farm but this is a temporary measure, for example while changes are being made, then HMRC will accept the farming trade continues. However, if a return or claim is made that production has ceased only temporarily, then HMRC would expect to see the farm infrastructure maintained.
- Second, where there is a permanent cessation of all production then the trade will also have ceased. If there is no trade then the SP will be chargeable as miscellaneous income.
- Third, there may be a new trade in place of farming. If there is no farming trade for tax purposes but it can be shown that the land occupied is still managed on a commercial basis and with a view to the realisation of profits then that occupation will still constitute a trade for tax purposes although this is not the trade of farming under the statutory definitions. . So, for example, if unused losses existed at the change then they would not be available to relieve against profits arising in the new trade. The onus will very much be on the land occupier to show that these conditions are satisfied and that trading status is consequently justified. However, where the person so asserting was previously a profitable (not restricted to the immediately preceding year) commercial farmer then while the potential profitability of the activity will still need to be established, HMRC will make the presumption that the farm will continue to be organised and run on a commercial basis.
The simple receipt of SP is not evidence that a person is carrying on a trade of farming for tax purposes. On the other hand there may be cases where the absence of a SP income will be unhelpful to a landowner who asserts they were farming. For example, land that is used for grazing horses or ponies kept for the leisure purposes of the SP recipient is eligible for SP provided all the other conditions are satisfied. If the occupier keeps the land in GAEC then SP may be received. But that does not mean a trade is being carried on. In these cases income will be classified as miscellaneous income and tax charged accordingly.
In summary, SP may be taxable under one of the following heads:
- trading as a farmer,
- as trading income, not being a farming trade, or
- non-trading-miscellaneous income.