ICAEW.com works better with JavaScript enabled.

Snippets from the Advisory Group

Matters of interest arising from the November 2019 advisory group meeting.

Committee meetings of the advisory group do not just involve drinking tea and planning next year’s conference. They also serve as an informal way of discussing matters of interest. The November meeting was particularly fruitful in this respect and provided a number of comments well worth sharing:

VAT

The general consensus was that MTD was now running and had been relatively free from major problems. Typical issues were:

  • Client software not working with the HMRC portal and needing to go via the agent software instead or, with HMRC permission, using the old portal
  • Clients registering for MTD when they were below the limit
  • Payment issues where the MTD direct debit overlapped with the old system

This led onto a discussion of common VAT errors in farm VAT returns which included:

  • VAT not being charged on tack-rent (livestock keep) or shared labour
  • VAT being wrongly dealt with on trade-ins (probably due to lost self-billing invoices)
  • VAT not being charged on contractors shares of divisible surplus
  • VAT not being charged where straw is sold for bedding
  • VAT not being charged for car boot sale pitch fees
  • VAT being charged at the wrong rate (or not at all) where logs or other fuels are sold for domestic burning (see VAT note 701/19)

Herd basis

Tax treatment of livestock under TB (contributed by Tim Evans of H D Pritchard and Co).

Livestock farmers can choose between 2 different bases for calculating their profits for tax purposes - the herd basis and the default trading stock basis.

Whilst the herd basis must be elected shortly after farmers commence farming a production herd, they may make an election, if whilst farming on the trading stock basis, their herd is required to be slaughtered because of TB. If the whole or a substantial part of the herd (20% or more) has to be destroyed by order of a government department or local authority and compensation and or insurance monies is/are payable, a herd basis election will take the compensation/insurance receipts out of tax.

The herd basis election will remain in force for the duration the farmer keeps a herd of the same species for the same kind of commodity for resale.

There is also some tax relief for trading stock animals which are generally reared for resale and immature animals which have not yet joined the herd. Compensation received for their slaughter can be spread equally over the following 3 years, thus reducing the tax burden when farmers will most certainly be experiencing unforeseen demands on their operating cash flows.

Weather (and its implications)

The extraordinarily wet Autumn is likely to cause both practical and financial problems. The banks are aware of the issues, particularly in the North and the Midlands, and will probably be prepared to make additional facilities available, but as always, it is the more detailed and precise applications for extended facilities which will be received most enthusiastically. However, in practical terms much arable land will be going into the Winter undrilled, so there will be far more Spring cereal crops in 2020. This will not only mean lower returns but will also give a very different structure to the year-end valuations in many cases, so particular care will need to be taken on cut off.

In the livestock areas cattle will have been housed earlier than usual so winter feed costs will be higher.

The importance of valuation cut off was highlighted by one member whose client had been investigated. The inspector attempted to ascribe a value to grass stubble growth between the date of the last silage cut and the year end, which fell two weeks later – the answer of course is that the value had risen but that there had been no cost involved. Nonetheless it underlines the degree of detail which HMRC might look to investigate.

Grants

A new round of RDPE grants was announced on 4th November. Grants may be available for:

  • Business development
  • Food processing
  • Rural Tourism Infrastructure

The minimum grant is £20,000 and the maximum is £175,000 (£750,000 for food processing) and will cover up to 40% of eligible expenditure. Competed expressions of interest must be submitted by 16th February 2020 so the window is quite tight.

David Missen