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AGRICULTURE

moore scarrottCHARTERED CERTIFIED ACCOUNTANTS

One piece of welcome news for rural businesses in the Chancellor’s 2012 Autumn Statement was the tenfold increase in the amount of the Annual Investment Allowance (AIA). With this in mind, we have compiled a 10 point plan to maximise tax relief.

1. The AIA provides a 100% deduction for plant and machinery. Given the limit was previously £25,000, the new £250,000 limit from 1 January 2013 provides significant tax relief at a time when cash flows may be stretched.

2. The timing of capital spending is critical to the rate and timing of tax relief. For example, a business with a year end of 31 March 2013 will be able to obtain 100% tax relief on £81,250, provided not more than £25,000 was incurred before 1 January 2013.

3. It is not always more beneficial to incur significant capital expenditure before the year end. If the business has already used the AIA limit, it may be better to wait until the new financial year when 100% tax relief under the new £250,000 limit will be achieved, rather than 18%.

4. The recent changes may also impact on whether to purchase assets outright, or on hire purchase or lease.

5. If substantial capital expenditure is planned, the year end could be extended to accelerate tax relief.

For example, a partnership with a year end of 31 December 2012 could extend their accounting period to 31 March 2013. This would allow 100% tax relief on capital spend of £106,438 instead of only £44,794.

6. If a business has already spent more than the annual entitlement to 100% tax relief, it may still be able to obtain immediate tax relief if energy or water efficient plant has been purchased.

Energy & water efficient plant• See www.eca.gov.uk for a list of

qualifying items

Examples include • Automatic monitoring• Leakage detection• Dewatering equipment

7. Businesses can accelerate tax relief on the disposal of other assets which have a shorter life span if it has already used the AIA limit.

8. If you claim capital allowances for fixtures within a building, the cost still qualifies as a deduction from your capital gain when the building is sold.

9. Allowances are available for plant and machinery as well as “integral features” within buildings.

Some examples of recent claims for AIA are:

• Plant and machinery - including tractors

• Electrical work• Moveable scrapers• Slurry storage systems• Manure storage bases• Monitoring & feed systems• Slatted floors• Items within sheds (or, potentially, the sheds themselves!) 10. From April 2013 there are changes to the tax relief available for cars, depending on the CO2

emissions. Any decisions on changing vehicles should take into account the tax implications as well as normal commercial considerations.

100% tax relief up to £250,000A 10 point plan to maximise your tax relief

Mention forensic accounting and people imagine men in white overalls sifting through evidence at the scene of a crime. We thought it might be helpful to explain the true nature of forensic accounting and its importance to those who potentially have a claim for losses.

Forensic accounting involves the collection and analysis of accounting and other financial evidence for the purposes of litigation or prospective litigation and, potentially, providing an expert opinion in court. In civil cases, this might relate to a breach of contract, business interruption, personal injury or a matrimonial dispute. Criminal cases might relate to fraud or tracing the proceeds of crime.

A forensic accountant will assess the amount of the loss suffered, on behalf of either the claimant or the defendant (or sometimes for both parties as a Single Joint Expert). In a well run case the accountant will be involved from an early stage to make an initial assessment of quantum and advise the legal team as well as producing evidence for use at trial.

Moore Scarrott’s specialism in the agricultural industry means that it can combine both industry knowledge and forensic expertise in the resolution of commercial disputes in the farming and related sectors. A recent farming case which went as far as the High Court, but eventually settled in the corridors, illustrates the role of the forensic accountant at the various stages.

The case related to the supply of defective farm machinery. There was no question that the machinery was faulty and that the farmer suffered losses as a result. What was in question was the extent of those losses.

At an early stage we reviewed the farmer’s claim for loss of profits on behalf of the defendant, the machinery supplier, and concluded that the claim was overstated. We advised that it would not be appropriate to settle the claim at anything like the amount calculated by the farmer and the farmer commenced legal proceedings against the supplier.

Having identified and obtained the evidence we would need to carry out a full assessment of the claimant’s losses it soon became clear that our initial assessment was correct. An offer of settlement was made on the basis of our calculations and, eventually, the case settled at broadly the amount we had originally calculated (plus an allowance for interest and costs) – roughly 40% of the amount claimed.

This case demonstrates the importance of the forensic accountant in the process to:

• assess the level of quantum at an early stage to determine whether a claim should be pursued or settled

• identify the evidence required to determine the true level of losses

• calculate the losses based on the accounting and other evidence

• advise on the settlement of the claim

In this case the farmer did not have a forensic accountant acting on his

What is forensic accounting? Why is it relevant to farmers?

behalf but relied on his other advisors to quantify his claim. Elements of his claim were rejected as insufficient evidence was put forward to support them. It may be that his eventual settlement could have been higher had the necessary evidence been provided.

A forensic accountant thus has an important role to play on both sides of a claim.

If you are considering claiming for a financial loss (or if you potentially have a claim against you) do contact us at an early stage so that we can advise on quantum as well as the accounting evidence you will need to support (or defend) the claim.

Mark Shelton has been advising Tim Wilson, owner of The Ginger Pig, for over ten years. He explains how the business has developed and some of the challenges over this period.

When I first met Tim he was standing behind a market stall at the twice weekly Borough Market, near London Bridge station. He had a smallholding (and I mean small) in Nottinghamshire, produced sausages, bacon and hams from his rare breed pigs, and sold these from a small farm shop and market stalls.

Tim had a small business but big ideas. He sensed the growing demand for his meat and knew that, if he was to keep up with that demand, he had to produce more. A larger farm was needed and at that stage he sought professional advice.

Tim had come through a series of referrals until finding someone who understood his business and where he wanted to take it. “Mark had the right combination of accountancy skills, farming knowledge and practical business sense and could

see the potential for the business” he comments. “I can come up with the ideas but what I needed was someone who could ensure that those ideas worked financially – and tell me if they didn’t” he adds.

Having produced the necessary budgets and business plans, a farm was purchased on the North York Moors on which Tim could rear the pigs, sheep and cattle for his rapidly growing London market. The farm remains the centre of operations today housing meat processing and cold storage facilities, a bakery, and the head office function as well as being the hub of the farming operations.

The Ginger Pig – from market stall to retail chain

At the time Tim’s concept was original: producing the highest quality meat and selling it direct to the consumer in the centre of London – seeing the whole process through from growing the grass and breeding the animals, to discussing with the customer the best way to cook a particular piece of meat. He has since had many imitators but Tim has always stayed at least one step ahead of his competitors and has a very strong following amongst the London foodies.

The Ginger Pig is now an £8m turnover business with over 50 employees. There are five London shops and plans to open more over the next few years. As well as the usual cuts of meat, the shops sell charcuterie, pies and cooked meat dishes.

“the right combination of accountancy skills, farming knowledge and practical business sense”

Examples of assignments for The Ginger Pig

• Refinancing • Business restructuring• Management accounting and departmental costings • Business plans and budgets• Investment and project appraisals • Grant application • Loss of profit claim• Strategic and general business advice • Personal financial advice• Personal and corporate tax advice• Annual accounts, audit and tax compliance

There is also a thriving wholesale business selling into some of London’s (and Paris’s) best restaurants who proudly state on their menus that their meat is supplied by The Ginger Pig. Whilst Tim has stuck rigidly to his core business of producing and retailing quality meat, other activities such as butchery classes, book writing and appearances on many of the television food programmes help to strengthen the brand.

The rapid growth of the business has brought a number of challenges. In common with many businesses at this stage in their development the top three have been:

1. Finance – a business growing at this rate will always absorb cash. Cash flow combined with adequate and appropriate funding is critical to ensure that the business can achieve its growth potential.

2. Management – Tim no longer stands behind his market stall. Whilst he maintains a firm control over the whole business he has had to adapt to leaving the day-to-day decisions to his team of managers.

3. Systems – for a number of years the till was a biscuit tin under the counter. As management responsibility has been delegated it has become ever more important to understand exactly how each part of the business is operating. A complex till system and robust stock control were big steps that the business had to take.

Whilst these challenges are new to Tim, our involvement with growing businesses means we have seen them all many times before. C

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For more information on The Ginger Pig go to www.thegingerpig.co.uk

Moore Scarrott is an integral part of the management structure at The Ginger Pig and is involved in all finance-related aspects of the business (see inset box) bringing in many different areas of expertise from across the whole firm. In fact there are few areas where we are not called in to help – even including chutney tasting and appearing in a Hairy Bikers programme filmed at the farm!

The success of the business has attracted many potential investors and buyers and serious offers have been received. However, with Tim’s exciting plans for the future, there is so much more potential to be realised before a sale should be considered.

What has made The Ginger Pig such a successful business? It is always difficult to put a finger on exact reasons but contributing factors will include: • A passion for the product and the underlying philosophy: ‘Quality food from farm to fork’• Identifying a niche, filling it, and then expanding it many times over• Not getting distracted from the core business• Building a strong brand and a loyal following• Total commitment and sheer hard work; and, of course• Good professional advice (and acting on it)!

Minimise Your Tax on Sale

In order to maximise the amount of cash you get to keep from a sale of your farm house, buildings or land, advance tax planning is key.

The gain on the sale of your own home is normally exempt from capital gains tax. This may also apply to another property you own personally if you are required to live elsewhere due to working on the farm.

The sale of land may attract a 10% rate of tax, due to Entrepreneurs’ Relief, if you are disposing of the whole or part of your business. The sale of a few fields will normally be taxed at 28% (with potentially a small amount taxed at 18%).

For example, suppose you dispose of half of your land which has been used in dairy farming. At the same time you give up the dairy side of the business and continue with arable farming on the remaining land. As you have disposed of the dairy side of your business, the disposal of the land should qualify for Entrepreneurs’ Relief.

Forward planning is important as it may be possible to isolate land which may be sold in future and lock in to a lower tax rate.

For land sold for development, be aware that any “slice of the action” contracts may be taxed as income and not capital. If you have land which may significantly increase in value, then consider whether ‘pilot’ trusts may be beneficial.

If you cease to farm then you have a three year window in which to sell the assets and still obtain the 10% tax rate.

Everyone has an annual exemption of £10,600 to use against capital gains, so consider how the ownership of land impacts on maximising reliefs and exemptions.

There are options even if you have property which potentially does not qualify for relief. We can advise on planning opportunities for properties standing at a large potential capital gain, potentially taking them from a 28% rate of tax to 10% rate of tax.

• Minimise Your Tax on Sale• Agricultural Wages Board• Tax Relief for Employees• Contractors• Tax Relief for Fixtures in Farm Buildings

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Agricultural Wages Board

The Agricultural Wages Board was established in 1948 to set the minimum wage and other terms and conditions of work for agricultural workers and, despite plans to abolish it last year, it now looks like it will be abolished in October 2013. Items covered include:

• Minimum rates of pay (which can be reduced for accommodation provided by you)

• Rest periods

• Holiday entitlement

It still contains some oddities. For example, did you know that if you require your employees to provide a working dog, they are entitled to an additional £7.63 per week per dog?

You need to be aware of your obligations as far as your employees are concerned, particularly where hours of work and holiday are concerned, as a claim against you for failure to operate this correctly can prove costly.

Tax Relief for Employees

For workers in certain industries, HM Revenue & Customs operate a “flat rate scheme” which gives a fixed rate of allowance available to workers in those industries. This is intended to cover the cost of tools and protective clothing and for workers in agriculture, the current rate is £100 per year. If any of your employees are not receiving the benefit of this, they will need to contact the tax office on 0845 300 0627 and quote their national insurance numbers.

Contractors

Do you regularly use contractors who are self-employed?

If so, you need to ensure that you have the correct contracts and working arrangements in place as a challenge to status by HM Revenue & Customs can prove very costly if the contractors are reclassified as employees subject to PAYE.

Tax Relief for Fixtures in Farm Buildings – Don’t Miss Out!

There are opportunities to obtain significant tax relief on fixtures included in the purchase cost of your farm. You may be eligible for substantial tax refunds as well as saving tax in the future. The key points are as follows:

• It does not matter how long ago your farm was purchased

• Fixtures include moveable partitions, fixed plant, lighting, electrical systems and water systems. This claim is on top of the claim you may have already made for other moveable plant and machinery

• In many cases it is possible to make a claim based on the current replacement value of the fixtures, which can be substantially more than their market value

• You can also claim on properties such as job related accommodation or furnished holiday lets

• If you have purchased a farm or commercial property since 5

April 2008, there may also be an opportunity to claim for additional allowances on integral features

For example farm buildings costing £500,000 could have £100,000 of fixtures qualifying for capital allowances. A higher rate taxpayer may benefit by paying £42,000 less tax over the life of the claim.

We would be happy to carry out a review to see whether the above tax relief may be available to you and assist in making your claim.

There have also been changes in capital allowance legislation which will have an impact on anyone buying or selling a farm. If you are considering buying or selling property then it is best to seek advice in advance to ensure your tax position is optimised.

For advice on whether you could make a claim on your farm buildings or in respect of planning for proposed sales or purchases, please speak to Heather Britton, our capital allowances specialist or your usual contact.

Mark Shelton FCAAssociate Partner

Telephone & Email: 07900 823107mark.shelton@moore-scarrott.co.uk

Mark spent ten years in practical farming and farm management consultancy before entering the accountancy profession. After 12 years with Big 4 firms and ten years running his own Somerset based practice, working almost exclusively for clients in the food and agricultural industries. Mark joined Moore Scarrott in 2011 to head the firms Agricultural and Rural Business team.

Marcus Longbottom FCA Partner

Telephone & Email: 07712 931993cmsl@moore-scarrott.co.uk

Marcus joined the partnership in 2007 having previously been a partner in a South Yorkshire practice. He qualified in 1992 and become a fellow of the Institute in 2003. Marcus has extensive knowledge and experience of the Agriculture and Rural Business sectors and is one of the partners responsible for our Agricultural clients.

Simon Tapp ACA FCCASenior Agricultural Manager

Telephone & Email: 01823 282100simon.tapp@moore-scarrott.co.uk

Qualifying as a Chartered Certified Accountant in 1999 and becoming a fellow of the Association in 2004, Simon has been with Moore Scarrott since 2005.

A farmer’s son from Mid Devon, Simon provides accounting, tax and business advice to smaller incorporated and non-incorporated businesses, owner managers and sole traders, including Agricultural and Rural based businesses.

Heather Britton ACA CTAHead of Tax

Telephone & Email: 01823 282100heather.britton@moore-scarrott.co.uk

Heather heads up our tax team, having previously worked for 11 years as a tax consultant in a large South West independent accountancy firm. She specialises in property transactions and strategic tax planning for corporates and individuals, as well as being an examiner for the Chartered Institute of Tax.

Jemma Crane ACA CTATrusts & Estate Manager

Telephone & Email: 01823 282100jemma.crane@moore-scarrott.co.uk

Jemma joined the practice in 2010, after qualifying as a chartered accountant and chartered tax advisor with a top 30 accountancy firm. She has successfully developed a specialism in servicing the varied accounting and tax requirements of landed estates, farmers and other clients within the rural sector. Her work includes trust tax planning and minimising tax expenses for individuals and businesses.

Angela Wych FCCA Senior Agricultural Manager

Telephone & Email: 01823 282100angela.wych@moore-scarrott.co.uk

A Devon farmers daughter, Angela joined the practice in 2003, qualifying in 2005 and becoming a fellow of the Association in 2010. She manages a portfolio of farming and rural business clients across the South West and maintains a healthy practical perspective on farming by helping out on the family dairy and sheep farm.

www.moore-scarrott.co.uk

Calyx House, South Road, Taunton, Somerset, TA1 3DU T. 01823 282100 F. 01823 254396 E. info@moore-scarrott.co.ukThe content of this newsletter is for general information only. It should not be relied on and action which could affect your business should not be taken without appropriate professional advice.

Moore Scarrott is the trading name of The Moore Scarrott Partnership LLP, a Limited Liability Partnership, registered in England & Wales No. OC329196.Registered Office: Calyx House, South Road, Taunton, Somerset, TA1 3DU. Regulated for a range of investment business activities by the Association of Chartered Certified Accountants.

If you do not wish to receive future copies of this publication please contact Martha Harley at martha.harley@moore-scarrott.co.uk