Agriculture has its own tax world. The rules that apply to farmers — profit averaging, Agricultural Property Relief, capital allowances on equipment and buildings, VAT flat rate schemes, and the treatment of subsidy income — are specialist enough that a general high street accountant, however competent in other areas, will often miss the nuances that matter.
At Hayes Chartered Certified Accountants and Tax Consultants, we work with farmers and agricultural businesses across the UK. We understand the financial pressures of farming: the cyclical, unpredictable nature of agricultural income, the capital-intensive reality of maintaining land and machinery, and the significant changes in subsidy and support payments that have followed the UK’s departure from the EU Common Agricultural Policy.
Farming income is notoriously volatile. A good harvest year followed by a poor one can mean paying substantially more tax over the two years combined than if income had been smooth. HMRC recognises this and provides agricultural profit averaging relief, which allows farmers to average profits over two or five years for tax purposes.
Used correctly, averaging relief can make a material difference to a farmer’s tax bill over time. Used incorrectly — or not used at all — it’s money left on the table. We assess averaging options for all our farming clients as a standard part of year-end tax planning.
Farming businesses typically carry significant capital assets — tractors, combine harvesters, irrigation equipment, grain stores, polytunnels, and farm buildings. The capital allowances regime provides mechanisms to offset the cost of these against taxable profit, either immediately through the Annual Investment Allowance (AIA) or over time through writing down allowances.
The AIA currently provides up to £1 million of immediate relief — enough to cover most equipment purchases in a given year. Knowing when to use it, when to defer it, and how to structure larger purchases across tax years is part of careful agricultural tax planning.
Farm buildings have a separate treatment: Structures and Buildings Allowance (SBA) provides relief at 3% per year. Agricultural buildings relief under the old rules may also still be relevant for assets bought before the SBA was introduced.
Most farming businesses are VAT-registered, and agricultural businesses have an option unavailable to most other sectors: the VAT Agricultural Flat Rate Scheme (FRS). Under this scheme, instead of calculating and reclaiming actual VAT on purchases, the farmer adds a flat rate addition (currently 4%) to sales to VAT-registered customers and retains it. This is designed to compensate for VAT on farming inputs without the administrative burden of full VAT accounting.
Whether the flat rate scheme or standard VAT accounting is more beneficial depends on the specific mix of inputs and outputs in the business. We assess this for each farm client and review it periodically, because the calculation can change as the business evolves.
The UK’s transition away from EU Common Agricultural Policy payments has been phased — the Basic Payment Scheme (BPS) is being wound down, replaced by the Environmental Land Management (ELM) schemes in England, and equivalent schemes in the devolved nations. This transition has changed both the amount and the nature of subsidy income for many farmers.
Government support payments are generally taxable income. How and when they’re taxed — and how they interact with averaging relief calculations — matters. We keep up with the evolving scheme landscape and ensure our farming clients’ subsidy income is handled correctly.
For farm owners, the farm itself is often the most significant asset — and the most significant inheritance tax consideration. Agricultural Property Relief (APR) provides up to 100% relief from Inheritance Tax on the agricultural value of qualifying farmland and farm buildings, subject to conditions around ownership period, occupation, and use.
There have been significant proposed changes to APR in recent Budget announcements, including a cap on 100% relief and a potential 20% IHT charge above a threshold. These changes — if implemented as proposed — will affect many family farms. Planning in advance of such changes is critical.
We work with farming clients on inheritance tax planning, including the interaction between APR and Business Property Relief (BPR), and refer to specialist solicitors where estate planning requires legal input alongside tax advice.
Many farms now generate income from activities beyond traditional agriculture — holiday lets, glamping, equestrian activities, farm shops, renewable energy installations, or events. This diversification income often has a different tax treatment to the core farming business and needs to be handled separately.
Holiday let income, for example, is classified as property income rather than trading income — which means it doesn’t benefit from averaging relief and has different expense rules. We ensure diversification income is categorised and taxed correctly, and that the farming and non-farming elements of the accounts are properly separated.
If you farm in the UK — whatever the size or type of operation — and you want accountants who understand agriculture rather than just accounts, we’d be glad to help.
Hayes Chartered Certified Accountants and Tax Consultants — working with farmers and agricultural businesses across the UK.
Call us on 020 8646 0800, WhatsApp us on 07429 584191, or fill in the contact form on our website to arrange an initial conversation. No obligation, no jargon.
Averaging allows you to smooth farming profits over two or five years to reduce the impact of volatile years on your tax bill. It applies to individuals carrying on a trade of farming in the UK. We assess whether it’s beneficial for you each year.
The Annual Investment Allowance allows you to deduct up to £1 million of qualifying plant and machinery in the year of purchase. We structure your capital allowance claims to maximise the benefit for your tax position.
It depends on your specific input/output mix. The Agricultural Flat Rate Scheme suits farms with significant VAT-bearing inputs but relatively straightforward VAT-registered sales. We assess your position and advise accordingly.
Agricultural Property Relief can be very valuable — but it has conditions and it is subject to ongoing legislative change. We advise on APR and its interaction with IHT, CGT, and any ongoing income tax considerations, and work alongside estate planning solicitors where appropriate.
Yes. Different types of diversification income are treated differently — trading income, property income, and capital receipts each have their own rules. We ensure the full picture is structured and reported correctly.
Both income sources need to be declared on your Self Assessment return. Your PAYE income will usually have tax deducted at source already; your self-employed income is taxed separately. We reconcile both and make sure you’re neither overpaying nor underpaying.
There are a lot of ways you can contact Hayes Chartered Certified Accountants (HCCA),
Call : 0208646 0800
WhatsApp : 07429584191
Email : info@hayes-accountants.co.uk
Submit your query here : Form
or for more details : Contact Us
Stop juggling your finances alone. Hayes Chartered Certified Accountants and Tax Consultants offers everything a business or individual needs under one roof — Bookkeeping, VAT returns, payroll, self-assessment tax returns, pension auto enrolment, year end accounts, corporation tax, capital gains tax, CIS tax returns, tax rebates, landlord taxation, management accounts, cash flow management, budgeting and forecasting, tax advisory, company formation, registered address, company secretarial services, and Making Tax Digital (MTD) compliance. One team. Every service. Zero hidden fees.
Book your free consultation today and find out how much we could save you.
