HMRC change the rules .

[Goweresque]

Here's the HMRC page of the taxation of trading business losses:

https://www.gov.uk/government/publications/losses-hs227-self-assessment-helpsheet/hs227-losses-2019

A quick skim does not suggest there is anything fundamental preventing you using the losses from your farm trading business to offset against income from other sources, as long as your farm business has been profitable at least once in the last 6 tax years. There is also a limit of the amount of tax losses that can be claimed in any given year,which is whichever is the larger of £50k or 25% of the given losses. Are the farm losses greater than £50K? That could be a reason for loss of trade loss relief.

I think you need to get your accountant to set out in writing exactly which rules he is applying here and where they appear in the HMRC rulebooks.

 

[traineefarmer]

First off, this is one of the biggest accountants in south west

Found the problem!

Get a new accountant asap. They are just trying to bump up their fees.

 

[betweenthelines]

you buy loads of expensive kit for the contracting business and the tax man isn't going to know you use it 364 days/year on the farm and one day contracting is he?

Or you could reduce your spraying charges!

 

[Still Farming]

Woah... Don t blame the messenger !!!
First off, this is one of the biggest accountants in south west with a big farm presence and I know and am sure that they are not lying. The assistant quoted some regulation number which this comes under but I did not write it down.
I was told this was a new rule, I don t like it and you don t like it but that does not mean it has not come in !
No, all three go through one bank a/c and vat return.
On my tax return, they have added extra self employment pages to split farm and contracting. Rent from sheds has gone onto my property tax forms which I already had as I rent out houses (outside of farm buisness). So no extra tax returns etc as others thought but yes a bit more time maybe. However, as I m on quickbooks and everything is allocated and split by me through the year with codes, it's not really hard. My accountants bill is the same as last years so no they are not doing this for their sake.
The only thing a bit different this year for me is that I had no losses from previous years to carry into this tax year and no written down allowances either so maybe because of that I have entered into a new position which is unusual for me ?

Tax bill then.
Accountants bill due for extra next time then.

 

[jimred]

Woah... Don t blame the messenger !!!
First off, this is one of the biggest accountants in south west with a big farm presence and I know and am sure that they are not lying. The assistant quoted some regulation number which this comes under but I did not write it down.
I was told this was a new rule, I don t like it and you don t like it but that does not mean it has not come in !
No, all three go through one bank a/c and vat return.
On my tax return, they have added extra self employment pages to split farm and contracting. Rent from sheds has gone onto my property tax forms which I already had as I rent out houses (outside of farm buisness). So no extra tax returns etc as others thought but yes a bit more time maybe. However, as I m on quickbooks and everything is allocated and split by me through the year with codes, it's not really hard. My accountants bill is the same as last years so no they are not doing this for their sake.
The only thing a bit different this year for me is that I had no losses from previous years to carry into this tax year and no written down allowances either so maybe because of that I have entered into a new position which is unusual for me ?

Do you go to the biggest machinery dealer in the area and never question what they say and never look for alternative quotes?
Accountants, bankers etc should be treated in exactly the same manner as any other supplier.

 

[Still Farming]

Here's the HMRC page of the taxation of trading business losses:

https://www.gov.uk/government/publications/losses-hs227-self-assessment-helpsheet/hs227-losses-2019

A quick skim does not suggest there is anything fundamental preventing you using the losses from your farm trading business to offset against income from other sources, as long as your farm business has been profitable at least once in the last 6 tax years. There is also a limit of the amount of tax losses that can be claimed in any given year,which is whichever is the larger of £50k or 25% of the given losses. Are the farm losses greater than £50K? That could be a reason for loss of trade loss relief.

I think you need to get your accountant to set out in writing exactly which rules he is applying here and where they appear in the HMRC rulebooks.

If your over 6 years of losses your shafted more .

 

[renewablejohn]

Ju
st back from accountant for end of year chat and preparing for tax return. Had a bit of a shock as my accountants say HMRC have changed the rules which has had a bad effect on my tax position.
Basically I have a arable and grass farm and a contract spraying round which all goes through my farm a/c and vat. Upto this year, all the income and costs have been done as " one " business so at the end any losses from one can be offset against profit from the others. However this year,although it's still the same from my end, my accountant has had to split contract income,farm income and rent income as three separate mini businesses and what has happened is my contracting has made a healthy profit, grass and shed rent has made a good profit but the farm has lost money. Due to new rules, the losses from the farm can t be used to offset the profit from the other two and so I will have a bigger tax bill to pay while the losses can be carried forward to next year only but as it's likely the farm will loose money again next year, they are not really any help!
It does not seem very fair. If I had a completely different business, ie a building firm, then yes I can see you can t use the offset but as its three farm related income streams, does not seem right.
Just a heads up for you all!
Ps, in process of loading contracting side with more costs away from farm to try and reduce profit. Will see how far I can go and what accountant will allow !!

Accountant talking rubbish. Refer them to the Balfour case if they think its still a problem then you should be looking at share farming agreements between the farm and the contracting business.

 

[Thick Farmer]

Ju
st back from accountant for end of year chat and preparing for tax return. Had a bit of a shock as my accountants say HMRC have changed the rules which has had a bad effect on my tax position.
Basically I have a arable and grass farm and a contract spraying round which all goes through my farm a/c and vat. Upto this year, all the income and costs have been done as " one " business so at the end any losses from one can be offset against profit from the others. However this year,although it's still the same from my end, my accountant has had to split contract income,farm income and rent income as three separate mini businesses and what has happened is my contracting has made a healthy profit, grass and shed rent has made a good profit but the farm has lost money. Due to new rules, the losses from the farm can t be used to offset the profit from the other two and so I will have a bigger tax bill to pay while the losses can be carried forward to next year only but as it's likely the farm will loose money again next year, they are not really any help!
It does not seem very fair. If I had a completely different business, ie a building firm, then yes I can see you can t use the offset but as its three farm related income streams, does not seem right.
Just a heads up for you all!
Ps, in process of loading contracting side with more costs away from farm to try and reduce profit. Will see how far I can go and what accountant will allow !!

Sack him

 

[Old Shep]

Accountant here -although Management accountant not a tax expert. Change your accountant asap. Most businesses have different income streams in our case manufacturing installation service spares etc We are Limited... but I cant think of anything else thats different. Change Accountants!!

 

[Still Farming]

Some accountants are crap and you just as well ask and do what HMRC say to start with.
The way losses are treated, spliting businesses ,diversifications etc.should and are "bread and butter "work for them therefore frustrating when they mess you about and let the revenue win.
Accountants stick together and get out of anything and if you up against it with the revenue then it's you who got to answer in the end.

 

[Jerry]

Accountant talking rubbish. Refer them to the Balfour case if they think its still a problem then you should be looking at share farming agreements between the farm and the contracting business.

Balfour has some very specific characteristics that don’t apply to most land based businesses.

We looked closely at the case with the hope it may our situation but dint hang your hat on their outcome.

 

[wanton dwarf]

What I don't understand about this issue is you run each business and can move money between businesses.

For example, the farm can charge the Contract Business rent and if the Farm owns the farm machinery .. then rent of the machines. If the farm does the maintenance of the machines then maintenance charges.

The farm could buy the chemicals and then sell them to the Contract business. Same with staff. Same with office facilities. Same with equipment. Same with service charges for use of water, electric, gas, yards, driveways, security, internet, GPS etc.

Between a good business man and an a good accountant the problem can be solved. Some accountants think it's their business to make you pay as much tax as possible .. I suggest the accountant in this instance is of no use to you.

 

[renewablejohn]

Balfour has some very specific characteristics that don’t apply to most land based businesses.

We looked closely at the case with the hope it may our situation but dint hang your hat on their outcome.

Can only go by experience but the Balfour case was the key in our successful HMRC tribunal case.

 

[TheTallGuy]

I would be asking for a formal signed document stating the position with reference to the relevant rules so that you can a) check up on what you are being told & b) the accountant takes responsibility for his advice. I would also follow the advice above about checking with another accountant - just because your current one is part of a large business it does not mean that you are being given good advice!

 

[Still Farming]

I would be asking for a formal signed document stating the position with reference to the relevant rules so that you can a) check up on what you are being told & b) the accountant takes responsibility for his advice. I would also follow the advice above about checking with another accountant - just because your current one is part of a large business it does not mean that you are being given good advice!

They tell you anything .

 

[alex04w]

The issue is 'trading' income and 'non trading' income. How losses from each income stream are dealt with are different. Therefore I believe your accountant is correct to split the businesses.

The farm and the contracting are both trading businesses and I think they do not need to be split. They are both broadly 'farming' and the treatment of profits and losses are the same. The extended period for 'averaging' of profits will probably apply to both. In addition, trading losses can be used in-year against other trading profits or income from PAYE employment.

However, rental income is treated entirely differently. As such, it has to be accounted for differently. There have been many tax cases and the result of these is that 'rental' income is not a trading profit, but an income from investments.

If you are a landlord and renting out a house, you are not 'trading' but benefitting from investments. Losses from investments can only be offset against past or future profits from the same investments. They cannot be transferred in-year against 'trading' profits or income from PAYE employment.

If this is the angle that your accountant is coming from, then they are correct to strip out the rent as a separate business.

 

[Goweresque]

The issue is 'trading' income and 'non trading' income. How losses from each income stream are dealt with are different. Therefore I believe your accountant is correct to split the businesses.

The farm and the contracting are both trading businesses and I think they do not need to be split. They are both broadly 'farming' and the treatment of profits and losses are the same. The extended period for 'averaging' of profits will probably apply to both. In addition, trading losses can be used in-year against other trading profits or income from PAYE employment.

However, rental income is treated entirely differently. As such, it has to be accounted for differently. There have been many tax cases and the result of these is that 'rental' income is not a trading profit, but an income from investments.

If you are a landlord and renting out a house, you are not 'trading' but benefitting from investments. Losses from investments can only be offset against past or future profits from the same investments. They cannot be transferred in-year against 'trading' profits or income from PAYE employment.

If this is the angle that your accountant is coming from, then they are correct to strip out the rent as a separate business.

That sounds eminently reasonable, but if true would still mean the OP has been given very bad advice (indeed possibly totally incorrect advice) on his tax affairs. There would appear to be no reason (other than if his farming activities have made losses for 6 years in a row) why trading profits from contracting cannot be offset against trading losses from farming, regardless of whether one splits them out into separate income streams for accounting purposes.

 

[traineefarmer]

Good accountants calculate the tax you need to pay.

REALLY good accountants calculate the tax you DON'T need to pay.

The OP has given few details of their business size, structure or ownership, so we may all be pissing in the wind with our suggestions. But I hope they get the main message from this thread and at least consult another accountancy firm for a second opinion.

 

[MRT]

Doesn't matter how big the firm is, bigger can mean no time to look at individuals and an unqualified numpty doing the work. Wifey is a one wo man band CA, law degree etc and does all the work herself

 

[How much]

you can load cost on to both the rental and spraying business by adding management time to both as cash figure from i asume the farm that must really be the main cost centre as both other business run from it , plus storage cost for the equipment for the spraying business from the farm will justify a rent figure from it to the farm and any other cost you can justifiably put through such as farm machine repairs.

don't saddle the spraying business with cost that is not absolutely necessary just to not make a profit !!!