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Farmers Averaging question

Farmers Averaging question

We deal with a market gardening/plant nursery client (not incorporated).

In the last year or two it has expanded its operations to include the provision of "packaged" floral displays and hanging baskets to pubs and retail outlets in the locality.  This has turned out to be a highly profitable cost centre.

We have an internal disagreement in our office of whether an averaging election would be competent.

There might be an argument that the diversified activity is a new trade that should be reported separately.  Then the averaging election would remain available, albeit not beneficial, restricted to the legacy market gardening activity, but excluding the expanded operations.

My feeling is that the separate trade argument would need to apply in order to prevent the averaging election from applying to the whole operation.

Aside from the averaging possibility there is no bottom line tax difference from merging them.  Both aspects are profitable so is not as if we are trying to mop up losses without the requirement of a sideways loss claim. Up to now they have been presented as single trade.

All of the business's plant, machinery, labour and resources are deployed for both aspects of the business.

What say all y'all.  Knife-edge or clear cut?  Pure "elephant test"? Not enough info?

With kind regards

Clint Westwood
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By mwngiol
08th Mar 2016 09:03

Flowers

Are the displays made out of flowers they've grown themselves? If so I'd say it's still part of the same trade, just packaged differently.

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08th Mar 2016 09:26


Yes homegrown

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By mwngiol
08th Mar 2016 09:44

Homegrown

The theory behind averaging is the seasonality of growing/producing. I don't think a change in the 'sales package' of the kind described amounts to a change in trade sufficient to affect the averaging claim.

I have farmers who do contracting work and this is separated from the farming for averaging purposes, because the contracting is clearly sufficiently removed from and not reliant on production. That isn't the case in your client's scenario.

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08th Mar 2016 10:52

Can you eat it?

I thought market gardening was specifically excluded from the definition of farming BIM 55051 and hence excluded from an averaging election, you could always argue that the displays were a form of art, and get the averaging election that way!

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08th Mar 2016 11:15

Odd

Oldmanwetmix wrote:

I thought market gardening was specifically excluded from the definition of farming BIM 55051 and hence excluded from an averaging election, you could always argue that the displays were a form of art, and get the averaging election that way!

Interesting, thanks.

S.221(2)(a) IT(TOI)A 2005 provides that a qualifying trade includes "farming or market gardening".

Implicit in this language is that farming and market gardening are separately defined activities, else the wording in s.221(2)(a) would be tautological (or should that be axiomatic?).

That BIM55051 goes on to confirm that they are separately defined is therefore neither surprising nor helpful, as both are embraced as qualifying in s.221(2)(a).

BIM55051 then goes on to describe the relevance of the distinction in definition, and implies that it is relevant to the availability of an averaging election (contrary s.221(2)(a) which implies that the distinction is irrelevant).  Unfortunately the link in BIM55051 to a detailed commentary on the relevance to an averaging election is broken.  Perhaps BIM55051 predates IT(TOI)A?  But then IT(TOI)A was only supposed to be a consolidating Act, I thought.

It would not be disputed that a significant amount of the output of this business is of plants which are for display rather than dietary consumption (indeed all of the produce for the cost centre in question).  Is that important?

With kind regards

Clint Westwood

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By mwngiol
08th Mar 2016 11:07

Averaging

All HMRC references to averaging that I've seen refer to averaging for farmers and market gardeners so I'd be surprised if market gardeners were excluded.

 

https://www.gov.uk/government/publications/farmers-and-market-gardeners-...

 

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08th Mar 2016 11:15

Trust HMRC not to know what's going on

When did it change? This is still in the manuals on their website.

http://www.hmrc.gov.uk/manuals/bimmanual/BIM55051.htm

Tolleys agrees with you too!!

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08th Mar 2016 11:24

Flogging a dead one

Well, rearing horses only counts if they are for eating, not racing or riding, but then artistic works can't be eaten either and their profits can be averaged. I'd wager HMRC don't know the answer to this one either.

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By mwngiol
08th Mar 2016 11:29

BIM 62601

BIM62601 specifically states that averaging is available to market gardeners, and also has the example of Christmas tree growing as being market gardening. Christmas trees not generally considered to be a food crop as far as I'm aware ;-)

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08th Mar 2016 11:44

BIM 84000 et seq

As Clint says, the link in BIM 55051 is broken but the detailed guidance on averaging is actually at BIM 84000 et seq, specifically BIM 84055 which says averaging is available for farming or market gardening

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08th Mar 2016 12:42

... which makes it all the more odd ...

Peter Cane wrote:

As Clint says, the link in BIM 55051 is broken but the detailed guidance on averaging is actually at BIM 84000 et seq, specifically BIM 84055 which says averaging is available for farming or market gardening


which makes it all the more odd that BIM55051 cites the averaging election among one of the factors that make the distinction between the definitions of "farming" and "market gardening" a matter of "significance".

With kind regards

Clint Westwood

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08th Mar 2016 13:15

I do not think that the final section of BIM55051 is suggesting that averaging does not apply to market gardening. It is making the point that it does apply to activities that fall within the definition of farming.

Separately it does previously note that market gardening is excluded from the definition of farming.

The restriction of loss relief mentioned in the final bullet also applies to both farming and market gardening, for instance.

Both averaging and the loss restriction have always applied to both farming and market gardening.

As has been noted, see also BIM62601.

Also take a look at BIM80530 in relation to the OP.

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