This article first appeared in Farm North East.

Rural businesses continue to face ongoing uncertainty over what the changing rural support schemes will deliver and how this will affect their future income.

This is not aided by the Scottish Government’s recent communications relating to cuts to the Rural Affairs Budget. There continues to be a focus on sustainability and ensuring you are incorporating ESG (Environmental, Social and Governance) into the decisions you make, ensuring your business remains fit for the future.

There has never been a more appropriate time to review your own and your team’s skillsets. Is further investment and training required to ensure you are fit to run a sustainable business? There may be grants and funds available in the sector to assist with this.

Training Funds available

Funding worth over £500k has been announced to help women and the next generation of young people develop new agricultural skills and further careers within the industry through the new £500 Agri Grants for Practical Training Fund. The funds will be delivered by Lantra Scotland and Women in Agriculture.

A reminder about Basis Period Reform 

The tax rules determining when trading profits of unincorporated businesses are subject to income tax are changing.  Currently, unincorporated businesses, such as sole traders and partnerships, including LLPs, are taxed on the profit or loss for the 12 months ending with the accounting date which falls in the tax year, which is known as the ‘current year basis’.

Basis Period Reform will tax the profit or loss that arises in the tax year. 2023/24 is the transitional year for the reform, with full introduction in 2024/25. Affected farming businesses can prepare for this change by identifying any existing overlap profits (your accountant can assist) and reviewing the best timing for any capital expenditure, diversification projects, succession planning, business cessation, partner retirement, and saving for retirement via personal pension contributions. It may also be worth considering whether to permanently change the year end date of the business, or the pros and cons of incorporation and operating as a company. However, for companies, the benefits of farmers’ averaging are not available. 

Autumn Statement

Prior to the Autumn Statement, there were rumours of changes to Inheritance Tax (IHT) or a reduction in the main rate of IHT but it would appear the current IHT regime remains and the valuable reliefs for farmers, such as Agricultural Property Relief and Business Property Relief remain for the foreseeable future as is the case for Capital Gains Tax (CGT).  With the IHT death rate remaining at 40% it is important that farming businesses review their current structure and consider succession planning to ensure they are maximising the generous reliefs available, such as gift holdover relief together with Business Asset Disposal Relief for CGT, and APR and BPR for IHT.  

On the income tax and National Insurance side we will see a few welcome changes with the abolition of Class 2 National Insurance contributions (NIC) for those with income over £12,570 and the reduction in Class 4 NIC main rate from 9% to 8% from April 2024.  A welcome announcement given that the last time Class 4 NIC was as low as 8% was in the tax year 2010/11.  

The reduction in the rate of NIC is a welcome announcement for Scottish higher rate taxpayers.  The NIC rates and thresholds are set by the UK Government with the NIC threshold for where the main rate (currently 12% for employees and 9% for the self-employed) reduces to 2% is aligned with the UK higher rate threshold for income tax, being £50,270. 

Making Tax Digital

The Autumn Statement provided simplification to the proposed Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA) system.  Previous guidance for MTD for ITSA referenced the need for four quarterly returns with a fifth end of year declaration.  In a welcomed move, the Government has taken on board stakeholder comments and have abandoned the need for the final declaration.  Alongside this, the Government proposes that the quarterly reporting will be on a cumulative basis with each quarterly return providing the year to date figures, the view here being that this will streamline the process and remove the need to correct earlier returns.     

MTD for ITSA should be introduced in two phases, starting with landlords, sole traders and the self-employed with income over £50,000 from April 2026 and over £30,000 from April 2027.  The Government is keeping the position under review for those with income less than £30,000 and have still to confirm if MTD for ITSA will be mandatory for those falling into this bracket. We continue to await a confirmed start date for Partnerships.  

The majority of our Rural team come from an agricultural background and are very passionate about working with clients in the sector.  To find out more, get in touch.