Tax warning as profits soar
INCREASED profitability in 2022 is pushing some farmers towards paying considerable tax at their yearend.
That was according to business advisory director at Johnston Carmichael, Jane Mitchell, who was speaking at the ‘ Autumn future of farming Scotland’ meeting at Thainstone, recently. Many North-east cereal growers bought a significant amount of their crop inputs in 2021 before the recent inflation and cost spike, whilst they sold at prices near double compared to last harvest, she pointed out.
Ms Mitchell said: “We are in a good period for certain sectors in farming at the moment, in terms of profitability. Our recommendation is to take advice now to mitigate your tax liability. Remember that you can average profits over five years now, which makes a difference.
“There are other options, such as paying into a pension or investing in machinery, which may be considered. Some businesses may also be considering becoming incorporated, but this is not something to be taken lightly.”
It was not all sectors that were reporting profits. Ms Mitchell added that the white meat sector and eggs were finding trading conditions difficult. She said: “Businesses which are buying in a lot of feed and not seeing a rise in output prices, are finding it hard at the moment.”
Also speaking at the event was Gary Webster, a partner at Ledingham Chalmers. He reminded the audience of the importance of early succession planning and highlighted tenure changes being proposed.
As more farmers look to diversify their income, Mr Webster mentioned that some tenant farmers might consider moving from an agricultural lease to a new land use tenancy. This allowed the tenant to use land for a greater range of activities.
However, for a change in tenancy, both parties would need to agree with compromise likely for both parties. The full detail on this new type of tenancy is yet to be published by the Scottish Government, as the consultation process has only just closed.
Mr Webster also recommended farmers seek advice before signing up to Scotland’s Register of Persons Holding a Controlled Interest in Land, as some business set ups might be exempt from the required recording and its detail – which could unnecessarily have adverse consequences on succession planning.
Finally, Brian Richardson, head of agriculture at Virgin Money, said it had been a reasonable couple of years for many in farming except the pig and more recently the poultry, sectors, but there were some significant challenges ahead around
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inflation that will inevitably squeeze returns.
He also explained that forward interest rate swaps were indicating a base rate around 5% in the medium term, but markets remained volatile and these higher numbers should be built into farmers forward planning and investment considerations.
The farmer audience asked the panel for their thoughts on carbon trading. Experts explained that whilst there was a woodland carbon code and a peatland carbon code, beyond these Mr Richardson described it as the ‘wild west’ for rules and regulations.
Farmers were urged by the speakers to do thorough research before entering any carbon contracts.