05 March 2020

CLA East Regional Director Cath Crowther

With the UK exit from the European Union, and the consequent changes in agriculture policy, there is a need for farming businesses to adapt, increase productivity, seek new markets, change land use and diversify to add additional income streams to support their farming operations.

Farming and land use has changed over the years with greater emphasis now placed upon the delivery of environmental objectives and, in the future, climate change mitigation and carbon sequestration will feature.

According to the Defra Evidence Compendium, 66% of farm businesses in England in 2017/18 included some form of diversified activity. For those farms with a diversified activity, their income from that activity accounted for 28% of their profit in 2017/18 and 22% of farmers total income was derived from some form of diversified enterprise.

Many rural businesses conduct multiple interdependent commercial activities as part of their over-arching business strategy on their land, such as rental accommodation, tourism ventures or renewable energy, in addition to farming.

These activities are arranged to complement each other with the overall objective of preserving a viable long-term business combining environmental objectives with economic wellbeing and the provision of local employment opportunities.

Currently the different elements of diversified businesses must be reported separately for tax returns, despite being part of a single business, creating additional administrative burden.  There is also a lack of clarity on how to apportion costs.

To avoid the burden and help deliver national environmental, climate change and productivity goals the CLA has written to the Treasury ahead of the 2020 Budget calling for a simplified tax system for rural businesses.

We propose that there should be a new approach to the taxation of diversified rural  businesses and have called this the Rural Business Unit (RBU). The proposal argues that there should be one set of coherent tax rules applied to all business activities undertaken by entrepreneurial farmers which are managed as one economic unit.

Qualifying businesses could elect for all elements of that business to be treated as a single entity, a RBU, for all tax purposes.

Our proposal is designed to ensure the RBU provides flexibility for rural businesses to embrace not only all those commercial activities traditionally associated with agriculture or heritage but also new commercial and environmental activities that are constantly being integrated.

The wider economy of rural areas – including tourism - depends upon continued stewardship of the countryside that cannot be provided by traditional agricultural businesses unless those businesses are both profitable and can deliver the future environmental management of the countryside for the public good.

We believe that our proposals will allow greater freedom of investment within rural businesses leading to productivity growth and more tax paid to the Exchequer, more income available for environmental protection and conservation, and more jobs. The administration of our proposed system would be a simplification, saving time, both for HM Revenue and Customs and for rural businesses.

The RBU will provide a simplified tax system for rural businesses to help unleash the potential of the rural economy.