MTD threat to farmers, warns CLA

The Country Land and Business Association (CLA) is calling for an overhaul of the tax system for rural businesses particularly in light of Making Tax Digital for income tax plans

The farming lobby group wants to see the creation of a single business entity for all farm activities to be called a Rural Business Unit and a set of coherent tax rules for all business activities undertaken by farmers.

Under the proposals submitted to the Treasury, the CLA suggests businesses that undertake agricultural, environmental, forestry and/or heritage activities with other interdependent commercial activities should be able to choose to be taxed as a single business entity - the Rural Business Unit.

There should also be one set of tax rules applied to all business activities undertaken by farmers which are managed as one economic unit. It cites issues around Making Tax Digital for income tax, pension contributions relief from income tax, sideways loss relief, capital gains tax and inheritance tax, which are problematic for farmers.

Rural businesses are far more likely to be small businesses run by unincorporated traders and partnerships, and tend to hold assets for decades.

The CLA proposal highlighted problems with the tax regime for agricultural businesses stating: ‘Another common feature of these rural businesses is an economic and commercial unification of a variety of business activities.

‘Despite this, the UK tax regime has long sought to impose artificial boundaries and restrictions to these businesses being taxed as one entity. This introduces a costly and time-consuming administrative burden and one that can be disproportionate to the tax payable.’

One of the major concerns is the extension of Making Tax Digital (MTD) to income tax reporting and its impact on unincorporated rural businesses.

CLA, which represents 30,000 rural businesses managing 10 million acres across England and Wales, said: ‘It has become apparent that whilst there is a requirement to provide information on income and expenditure to HMRC four times a year, with a formal return submitted digitally after the year end, this will have to be done for each business activity.

‘This could mean that a diversified business with farming income and income from a campsite, a 4x4 experience and from exporting electricity to the grid from an anaerobic digester will have to submit 17 returns a year.

‘Business overheads are typically shared across these multiple different activities and not separated out in the business management accounts.’

HMRC disputes the idea that businesses will need to file multiple tax returns a year as 'the new digital accounts will integrate all the different information businesses already provide to HMRC into a simple, streamlined system', an HMRC spokesperson told Accountancy Daily.

HMRC said: ‘Instead of one big, onerous tax return each year once-a-quarter businesses can check that the information they are collecting digitally is correct, and simply click “send” to update HMRC. MTD will give those with multiple businesses the flexibility to align all their update periods.’

Two thirds of farm businesses in England in 2017-18 included some form of diversified activity, generating around £680m additional profit (£18,700 average per farm) and accounted for 28% of their profit, according to Defra [Department for Environment, Food and Rural Affairs].

CLA president Mark Bridgeman said: ‘The proposal for the creation of a Rural Business Unit will allow greater freedom of investment within rural businesses leading to productivity growth and more tax paid to the Exchequer, more income available for environmental protection and conservation, and more jobs to local communities.

‘The administration of our proposed system would be a simplification, saving time both for HMRC and for rural businesses.

‘The change is considered necessary particularly in light of changes to agriculture post-Brexit.’

Bridgeman added: ‘Many farmers are looking to diversify their business to protect themselves from uncertain trading conditions.

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