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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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Farming: Single Payment Scheme: expenses

S34 Income Tax (Trading and Other Income) Act 2005, S54 Corporation Tax Act 2009

An explanation of the terms used in the Single Payment (SP) Scheme is at BIM55128.

The basic rule for the deduction of expenses against the Single Payment for a trade is that only expenditure laid out wholly and exclusively for the trade can be deducted from trading income. In practice the same rule also applies, so far as relevant, for non-trading SP treated as miscellaneous income for tax purposes.

If it can be shown that additional expenditure of a revenue character has been wholly and exclusively laid out to secure the SP then such expenditure may be allowed as a deduction, reducing 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. 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 be disallowed.

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 disallow the restriction as a penalty.

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 reference to the accounting treatment for prior period adjustments and post balance sheet events. In this respect whether the accounts apply current UK GAAP, new UK GAAP or IFRS we expect that in most cases the treatment for the purposes of the accounts will be comparable.