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HMRC internal manual

Business Income Manual

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HM Revenue & Customs
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Farming: Single Payment Scheme: income recognition (2008 onwards)

S25 Income Tax (Trading and Other Income) Act 2005, S46 Corporation Tax Act 2009

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

HMRC and the Institute of Chartered Accountants of Scotland and the Institute of Chartered Accountants in England and Wales entered into discussions about when payments under the SP scheme should be recognised in accounts. This resulted in the publication of an advisory newsletter being issued to members of these learned bodies in July 2008.

It is down to professional judgement whether the income should be recognised at 15 May or 31 December but whatever policy is selected it should be applied consistently. HMRC agree with the opinions and guidance expressed in this newsletter and have reproduced it here with permission of both bodies.

Changes to the Single Payment Scheme - Accounting Implications

Due to the changes agreed earlier this year by the EU Agriculture and Fisheries Council, ICAS and ICAEW have withdrawn their guidance on accounting issues arising from the single payment scheme issued in 2005.

As the rules of the Single Payment Scheme have been revised from 2008, claimants now only need to have the land used to match their entitlements at their disposal on one day (which, for the UK, has been set as 15 May) in each scheme year. However, such land must also be eligible for the entire calendar year. The ‘ten month’ rule which underpinned the guidance given in 2005 has been repealed.

This change raises the question as to when payments under the revised scheme should be recognised by claimants. In this respect, professional judgement should be applied to the specific circumstances whilst adhering to the overarching principle that the timing of recognition depends on having met the eligibility conditions.

Depending on the circumstances this might lead to one of the following accounting treatments:

  • the payment being recognised on 15 May as this is the only day that the claimant has to hold the land and they should be aware of the likely future use of the land and hence its eligibility for the remainder of the calendar year; or
  • the payment not being recognised until 31 December of the year in question as the eligibility criteria include the requirement that the land must be eligible for the entire calendar year.

In effect, the eligibility of the land for the whole of the calendar year is the crux of the issue. Claimants do not need to hold the land for the whole of the calendar year but they remain responsible for making sure that the land is in agriculture and the cross compliance requirements are met for the whole calendar year. This applies (post 1 April 2008) even if the applicant is not in possession of the land for the entire year.

Ultimately, members will need to exercise their professional judgement in this matter and will need to account for any payments received on a consistent basis.