The detail of Gordon's Budget not good news for rural business

'Last week's Budget announced by the Chancellor contains some bad news for rural businesses,' said David Fursdon, President of the Country Land and Business Association (CLA), now that the Association has had time to digest the detail of Mr Brown's 11th Budget. 'It certainly is not as good as the headlines would suggest.'

On Corporation Tax:

 

'The 2% drop sounds attractive but actually will only apply to incorporated businesses where the profits are over £300,000. Most farms are run as partnerships, even the ones that are run as companies will come in the next tier down, and there we are seeing the corporation tax actually going up 3% over the next three years.'

 

Planning Gain Supplement:

 

'Whilst CLA welcomes the news that changes to planning obligation are still being considered, we urge that planning gain supplements should not be imposed upon individual, small scale developments in rural areas, especially those such as workshops and offices which will bring employment to the countryside and affordable housing schemes. If land managers have to meet what could be as much as a 20% at the outset of building work and long before investment can be recouped, such schemes could prove unviable. Diversification projects would also be hit."

 

Agricultural Buildings Allowances (ABAs):

 

ABAs' are to be phased out for all agricultural buildings. Currently expenditure on agricultural buildings and structures qualify for a straight line allowance of 4% pa on expenditure. Although the standard 4% remains available in 20007/08, it has been announced that it will fall to 3% in 2008/09, 2% in 2009/10 and 1% in 2010/11, and abolished thereafter. With immediate effect balancing adjustments which occur when an interest in such a building or structure is transferred have been withdrawn. (1)

 

On biofuels:

 

"While CLA welcomes the extension of the biogas duty differential of 40ppl until 2011 – 12 and other measures to encourage the use of biofuels such as the extension of the 20ppl fuel duty differential to the use of biomass in conventional fuel production, the CLA is disappointed that there is no further encouragement for biofuel processing. It is still the case that British crops are sent abroad for processing and then returned in the form of biofuels."

 

On the increase in Vehicle Excise Duty for Band G Vehicles:

 

"Although the CLA accepts that 4x4 may well be used by many farmers the key point here is defining a farmer for any exemption purpose. Does it, for example, include the man with 30 acres of paddock let to horse grazing? If not, how does one frame any exemption to exclude him? If you accept the point above then what is really being said is that certain types of farming require a 4x4 vehicle and if so the expenses of running the vehicle, including the road tax, would be a proper deduction against income tax. The problem is that there is certainly for some a duality of purpose behind buying a 4x4 and hence a blanket deduction against farming profits would be enormously difficult to justify. It should always be remembered that this Chancellor will quite happily take away what he gives by another means - if he is forced to provide exemption on a blanket basis he may well be tempted to meddle with other agricultural reliefs."

 

On Inheritance Tax (IHT):

 

"The IHT nil-rate band increases to £300,000 on 6th April 2007, £312,000 on 6th April 2008 and £325,000 on 6th April 2009 were already announced last year. All that is new is the announcement that from 6th April 2010 the nil-rate band will increase to £350,000."

 

There are, however, two CLA lobbying successes:

 

Firstly, on taxation of non-cash benefits on retirement. Where once an employee who was required to live in an agricultural property would be charged tax - even though the cottage had been a non-taxable benefit during employment - it is intended that from 6 April 2006 that no benefit arises where the provision of the accommodation would not have been taxable during the currency of the employment. In short, retirement does not create a tax charge.

Secondly, on Stamp Duty Land Tax on exchanges between 'connected' parties such as close relatives this will be determined by independent and not aggregate values, SDLT is charged by reference to the total value on the basis of the exchanges being linked transactions. Now, however, the rate will be determined by independent values (2)

Notes:

 

1. The phasing out and abolition of ABAs on new expenditure must be seen as part of a package that re-designs existing allowances for plant and machinery as well. Part of this re-design has features that will be beneficial to CLA members and include:

(a) for small sized enterprises the 'temporary' 50% first year allowance for plant and machinery continues for 2007/08; and

(b) following consultation, a new 100% allowance for plant and machinery will be introduced in 2008/09 for the first £50,000 incurred; and

(c) the written down allowances due for long-life assets (generally assets with an expected life of 25 or more years) will be increased in 2008/09 from the current 6% to 10%

However, the re-design also contains features that will not be beneficial including:

(d) the reduction in written down allowances on plant and machinery in 2008/09 from the current 25% to 20%; and

(e) after consultation, reducing the written down allowances on fixtures integral to buildings from the current 25% to 10%.

Accordingly, whether the removal of ABAs on new expenditure when coupled with this re-design may leave some CLA members winners and other losers. However, the phasing out and removal of ABAs on expenditure incurred before Budget Day can only be seen as retrospective taxation for those who will have incurred expenditure and made financial calculations in the expectancy of the ABAs continuing. The CLA is strongly against this part of the measures.

 

2. Currently, if A and B exchange properties worth, say £250,000 and £300,000 the result is that the values are aggregated (£550,000) to determine the rate of SDLT (4%) that is then applied to both parts of the exchange. From Royal Assent of Finance Act 2007 which will probably July 2007, the rate will be determined by the independent values. Therefore, in the above example SDLT will fall from £22,000 to £11,500 (i.e., 1% on £250,000 + 3% on £300,000).