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Farmers-income treated as rental income or trading profits?

Farmers rent out part of their land/buildings to a company.  The company uses the facilities to house chickens. The monies received works out as significant proportion of the total profits.  Should this be taxed as rental income or fall as part of trading profits?

Thanks for any assistance.

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20th Oct 2010 14:09

Relaxed attitude

HMRC have been happy enough over the years for sundry farm income to be treated as trading income.

The question is why would you want to pay Class 4 NICs on unearned income?

 

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By SDGREEN
20th Oct 2010 16:44

Thanks
This is what I couldn't understand. It is the first year I have completed the tax return and previously the income has been included in the trading profits.

Basically I was double checking as to whether others thought this should be included in rent or trading profits. Wasn't sure if there was something I'd overlooked.

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By blok
20th Oct 2010 16:47

.

It would appear that the answer to your question was actually answered in the first three words of your question...

"Farmers rent out"

 

Its rental income, surely.

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Strictly, it's rental income....

Strictly, it is rental income and should be stripped out via the tax comp and taxed as such, but as Phil points out, HMRC seems to have taken a relaxed approach to this previously, likely as there could be an increased Class 4 NIC liability which I am sure they'll happily take!

The above said, I have noticed HMRC taking a keen interest in this area of late, particularly where farmers are concerned and the rental profit effectively bolsters the business results year on year; my suspicion is someone at HMRC has realised farms have been making losses year on year and those losses are being used in aggregation against rental profits thus sheltering income tax on the latter, in circumstances where s397 of ICTA would otherwise have prevented sideways loss relief against the same profits under s64 ITA.

Take a look at http://www.hmrc.gov.uk/manuals/bimmanual/bim41015.htm and s21 ITTOIA for the strict position; I think the legislation may related to "accommodation" but in an enquiry case of mine recently HMRC has quoted with reference to surplus land let by a farming client of mine.

As is the case with tax, no black or white answer, just a little more grey!

Best regards

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By mwngiol
22nd Oct 2010 15:16

Depends on the contract

Many farmers let out land on 6 month contracts only so that they can still claim their Single Farm Payment. In these cases it is classified as trading income.

This is the case in Wales. Not sure if it's the same in England and Scotland as I believe the SFP rules may differ.

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