Tax free single farm payment could be a reality, says accountant

Farming businesses which recently incorporated into a Limited Company, or are planning to in the near future, could receive their Single Farm Payment (SFP) tax free, saving £1000s.

Accountant Old Mill Rural Services says businesses which incorporate after the introduction of the SFP can receive an element of their payment tax free by transferring their SFP entitlements into the limited company or corporate partner. This not only allows the company to write off the transfer value of the entitlements against income, but also to extract profits tax free, says Partner and Head of Rural Services Mike Butler.

"SFP entitlements are classed as intangible assets, enabling companies and corporate partners to write off the cost of acquiring them against their income," he says. "Although the transfer could incur a Capital Gains Tax liability, the introduction of Entrepreneur's Relief on incorporation will significantly reduce that bill. And the ongoing tax savings will far outweigh the potential tax on the transfer of the entitlements."

A business which receives an annual SFP of £50,000 can transfer those entitlements to the new company or corporate partner for one and a half times their annual value, or £75,000. By writing off the cost of that acquisition at the planned Small Companies Tax rate of 22%, the company will save £16,500 in tax. Directors creating a loan account can also draw money from the company tax-free, generating a tax saving of up to £18,750 at the higher tax rate.

"In total, a typical farming business could save more than £35,000 in tax by incorporating after the SFP was introduced," says Mr Butler. "That is a significant saving, but farmers must consider all the other consequences of incorporating, including the impact on income and capital taxes, before taking the plunge," he adds.

"In particular, the use of corporate partners should be backed up by sound commercial justification, especially given the impending anti-avoidance tax legislation on income shifting. But those who have a good business case for incorporating could save £1000s in tax, boosting profits at a critical time for the farming industry."