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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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Farming quotas: quota leasing

There is a very active market in the leasing of milk quotas. The essential difference between leasing and sale is the temporary nature of the leasing arrangement with the quota reverting back to the original owner at the end of the agreement. This leads to a difference in the tax treatment. Payments for quota leasing are allowable expenses in the farmer’s accounts. Similarly, receipts from the leasing of a quota which is temporarily surplus to the requirements of a particular activity carried on by a farmer may be regarded as part of the trading income. But income from leasing of a quota which is not required because the activity to which the quota relates has ceased or substantially reduced should be dealt with as miscellaneous income.

Quota leased out by non-farmers

Where a quota is leased out by a non-farmer (including an ex-farmer who has retained quota), the income is chargeable miscellaneous income. It is highly unlikely that there would be evidence to justify treatment as trading income.