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HMRC internal manual

Business Income Manual

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HM Revenue & Customs
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Farming: orchards

S33 Income Tax (Trading and Other Income) Act 2005, S53 Corporation Tax Act 2009

The initial expenditure incurred by a fruit farmer on the planting, staking etc of a new orchard is disallowable as representing capital expenditure (see CIR v Pilcher [1949] 31TC314).

After the trees have been planted, all subsequent expenditure on cultivations etc is allowable in full as a revenue expense (see Vallambrosa Rubber Co Ltd v Farmer [1910] 5TC529).

Following Pilcher (see above) the expenditure incurred by a fruit farmer on grubbing up an old orchard is capital in nature. However, where there is a subsequent planting of new fruit trees, both the grubbing and replanting expenditure is normally allowable as a revenue deduction on a ’renewals’ basis, subject to certain conditions:

  1. Since grubbing and indeed planting expenditure is initially capital in nature, a deduction cannot be claimed on the renewals basis until the old trees have been grubbed and the replacement fruit trees have been planted.
  2. Renewals treatment cannot be claimed to the extent that the replanted area exceeds the grubbed area.
  3. The allowance should be calculated by reference to the area grubbed and replanted. For example, if 10 hectares were grubbed up and only 3 hectares planted, the renewals allowance would include 30% of the grubbing costs plus 100% of the planting costs. Not only is this a practical approach but it also recognises the agronomy of fruit production has changed and facilitates a full deduction even where tree planting density has increased.
  4. The planting must take place within a reasonable time of the grubbing (and vice versa) of the old orchard. It is not possible to be definitive about what is a reasonable time since it will vary from case to case depending on the facts but we would expect replanting to take place as soon as is practical taking into account agricultural advice and all the circumstances of the farm. HMRC will accept up to two years as reasonable but that is not to rule out longer periods where it is justified on the facts.
  5. Where the replanting takes place on different land and predates the old orchard being grubbed up, HMRC will still consider a renewals basis claim where the farmer or grower can show a clear replacement link at planting and the old orchard is grubbed within two years of the new one being planted. Again, as in (d) above, a period longer than two years is not ruled out where it is justified on the facts. HMRC need to be satisfied in the circumstances of each case that what has occurred is replacement and not expansion.
  6. Where a grant or subsidy is receivable, the renewals allowance must be reduced by this amount.

Whether or not an orchard has been replaced will ultimately be a question of fact but renewals should be taken to include:

  • replacement trees planted in a different field on another part of the farm; and
  • where the fruit type has changed (say apples to plums).

If a farmer/grower wishes to use the renewals basis, then the onus is on them to make the claim and have the documentation available to support such. These records will need to identify the physical areas grubbed and replanted, when the work was done and the direct costs associated with each.