CTM40200 | Particular bodies: farming

Farming is a major UK industry. Many farmers trade in partnership or alone as sole traders but some farming enterprises are undertaken by companies.

Historically, farming was taxed under Schedule B as income from the occupation of land, but since 1949-50 (FA48/S31) the taxation of farmers, including companies, has been dealt with in accordance with the principles associated with the computation of trade profits, though there remain a number of important differences and peculiarities. These are summarised here but more detail can be found at BIM55000 onwards.

Averaging of profits

Companies, including corporate partners, may not claim averaging of profits nor may any other body which is chargeable to Corporation Tax. Neither may unincorporated businesses using the cash basis, BIM84000 onwards.

Other issues

Farming is statutorily defined (CTA10/S1125 and ITA07/S996). All farming carried on by one person is treated as one trade (CTA09/S36 and ITTOIA05/S9). The implications of this are explained at BIM55050 onwards.

Many complications have arisen in the past because of European Union grants, subsidies and quotas. The guidance in the BIM explains how to deal with these and includes appropriate cross references to the CG guidance material, BIM55150 onwards.

Stock valuations can also be problematical but an industry agreement first published as Business Economics Note BEN19 but currently as helpsheet IR232 makes these easier to resolve, see BIM55400 onwards.

Statute defines livestock as trading stock but there are exceptions including an opportunity to elect irrevocably for the 'herd basis', under which in many cases a specified production herd or flock (class of animals) may be treated like a capital asset. These are explained at BIM55500 onwards.

Farmers can be restricted in the amount of loss relief they can claim under ITA07/S64 or CTA10/S37 by ITA07/S67 to S70 or CTA10/S48. This legislation is explained at BIM85600 onwards.

Recognising the natural fluctuation of farming profits, farmers (but not farming companies) may be able to claim to average two consecutive years’ profits. See BIM84055 onwards.

Farmers could formerly claim Agricultural Buildings Allowance or ABA. These allowances were abolished over a 4 year period ending in 2011. See FA08/S45. ABAs are explained at CA40000 onwards.