Farming: particular grants which may cause doubt or difficulty
Experience has shown that the following grants may give rise to doubt or difficulty.
Farm woodland premium scheme
Under the Farm Woodland Premium Scheme and its predecessor, the Farm Woodland Scheme, farmers receive annual payments to compensate for lost farming profits. Unlike most woodland grants, and despite the fact that the woodlands themselves are likely to be commercial woodlands and thus outside the scope of Income Tax, these payments are taxable as part of the farming profits.
If someone buys the woodland which previously attracted the annual payments under the scheme, they may continue to receive these payments. The receipt of these payments will, however, be as the owner of commercial woodlands rather than as a farmer whose land has been turned to woodland. As such, receipts under the scheme will escape tax as being receipts from commercial woodlands.
Apple orchard grubbing up scheme
Under this scheme apple growers may receive grants in respect of any trees they `grub up’ (that is, dig up). Such grants are not, in contrast to payments under the Set-Aside scheme, treated as income in the growers hands. They may however attract Capital Gains Tax liability (see CG78110 onwards).
There are various provisions (for example, the Wildlife and Countryside Act 1981) under which farmers may receive payments for managing their land in a particular way. Where the payments under such agreements are made annually there is no doubt that the sums are income for tax.
Sometimes, however, farmers receive a lump sum for managing their land in a particular way for a period of years. In this situation you may meet the argument that the payment is capital because it represents compensation for some sort of sterilisation of the land.
But the farmer is not prevented from using the land for the trade of farming. The management undertaken by the farmer comprises acts of husbandry and, whilst his scope may be restricted by the agreement, there is no doubt that the farmer remains the occupier of the land for the purposes of husbandry and therefore a farmer as defined by the statutory provisions(see BIM55051).
The concept of partial sterilisation was rejected by Browne-Wilkinson J in White v G and M Davies  52TC597 and the argument may be disposed of by reference to his judgment (see, in particular, page 605D and page 606B).
Farmers may also receive contributions towards specific capital expenditure under such agreements. Such sums are capital receipts.
In cases of doubt you should examine the agreement and the correspondence which led to it being made.
Environmental stewardship scheme
The environmental stewardship scheme, which includes the entry level scheme, the higher level scheme and the organic scheme, is an agri-environment scheme which provides funding to farmers and other land managers in England who deliver effective environmental management on their land. Farmers who take up these schemes enter into legally binding agreements lasting five or ten years to deliver certain specific environmental benefits as defined in the agreement. Each agreement is bespoke between the farmer and the Rural Payments Agency.