FAQs Intro

Whether you have engaged a corporate finance adviser to market your business for a sale or received an unsolicited offer, the Heads of Terms (“HoT”) sets out the fundamentals of their offer to you. They outline the consideration payable for the shares (or trade and assets), any expectations for key staff or seller to remain in the business, payment terms for deferred consideration and any exclusivity period for the offer, amongst other things.

While the HoTs are not legally binding, they do indicate a commitment from both sides. From this point onwards, both buyer and seller are acting in good faith, will start to incur significant professional fees, so getting the fundamentals right early is crucial. Once agreed, it can be difficult to deviate from key terms established in the HoTs, and therefore it is always worth considering taking professional advice on these to protect your position and minimise renegotiation through the process.

HMRC has been instructed to show increased leniency regarding time to pay arrangements for taxation payments and a dedicated helpline has been set up for any businesses concerned about their ability to make future payments (0800 015 9559). This allows businesses a time-limited deferral period on HMRC liabilities that are owed and a pre-agreed time period to pay these sums back. These tailored arrangements will give a business the time it needs to pay HMRC to support their recovery while operating through any temporary financial challenges that occur. To ensure ongoing support, HMRC have made a further 2,000 experienced call handlers available to support firms in difficulty. HMRC will also waive late payment penalties and late payment interest where businesses experience difficulties contacting HMRC or paying taxes due to COVID-19.

Double taxation can often be avoided through tax treaties between the UK and other countries. Our international tax accountants help our clients understand how to apply tax reliefs and credits available under these treaties to minimise their tax exposure.

Reclaiming VAT on overseas expenses or cross-border trade can be complex. Our specialists can advise on the correct treatment, eligibility for reclaims, and help ensure compliance with VAT rules.

It’s natural to want to know how your firm is performing compared to your competitors. The use of hybrid structures or operating vehicles which do not have to publish their results can make it difficult to get an accurate picture of how your competitors are doing. PEM, as part of the Kreston network, participates in an annual benchmarking exercise giving you the ability to assess your firm’s performance against similar size firms both nationally and locally. The benchmarking survey provides comparatives for lots of criteria including fees (both by Partner and by fee earner), salary and admin costs and Profit per Equity Partner.

Under MTD for Income Tax, you must submit summary updates of your income and expenses at least quarterly (every three months), rather than just once a year.

The quarterly filing deadlines are as follows:

If you receive joint income, such as income from a jointly owned property, each individual must report their share of the income separately for Making Tax Digital (MTD) for Income Tax purposes. MTD requires each taxpayer to maintain their own digital records and make their own submissions to HMRC, even if the income is derived from a jointly held source.

For example, if you and another person own a rental property together, you should each keep digital records of your respective share of the income and expenses. When making quarterly updates and your final submission, you must report only your share, not the total joint income. This ensures that HMRC receives accurate information for each taxpayer’s liability.

It all depends on what the business is diversifying into…

If the business is diversifying into other farming activities, for example, from arable farming to poultry farming, there will be little change to the tax position. All income from farming is assessed as one trade for tax purposes and there will be no change in the VAT position, Inheritance Tax reliefs or Capital Gains reliefs.

If the business is diversifying into investment activities, for example, property rental, there can be a substantial change in the tax position. For income tax purposes, the rental profits will be a separate trade which can carry their own tax rules. Generally speaking, rent is exempt from VAT which can lead to a restriction of input VAT reclaimed on overheads. Agricultural and Business Property Relief may not be available at all if the business is not “wholly or mainly trading” and so if the rental business will be larger than the farming business, you should consider restructuring to protect valuable reliefs against the farming assets.

Diversifying into renewable energy can be attractive from a tax perspective as some projects qualify for capital allowances at rates of 6%, 18% or 100% of expenditure. If the energy is used in the farming business, the Inheritance Tax and Capital Gains position won’t change. If the energy is sold, it may be considered an investment activity, which, as mentioned above, can lead to restrictions in reliefs available.

Setting up a trading business will still see changes to the tax position of your business. For income tax purposes, the profits will be a separate trade which can lead to restrictions if one of the trades is making losses or with farmers’ averaging claims. For Inheritance Tax purposes, Business Property Relief will be available on the new trading assets without any tainting of Agricultural Property Relief on the farming assets.

Changing risk profiles for diversification means that you should consider diversifying in a separate entity with limited liability to safeguard the existing business against any claims.

There’s a lot to consider with diversification from a tax and accounting perspective so it’s important to talk ideas through with a specialist to ensure you don’t encounter into any pitfalls.

The Basic Payment Scheme has provided valuable income for farming business, particularly those in the arable sector. The Government has confirmed no changes will be made for 2019 or 2020 and has announced deductions for 2021. The deductions are at rates between 5% and 25% and are staged as with income tax. Farmers can plan for this and should build the deductions into their cash flow forecasts.

Post 2021, deductions will be dependent on Spending Reviews and requirements under the new Environmental Land Management Scheme (ELMS); the Basic Payment Scheme’s replacement once we’re outside of the EU. ELMS may prove a valuable income stream for some farms, particularly those with a heavy focus on the environment. That said, the general consensus is that support will fall and so it is important to take a step back to review the profitability of your business without any support to see if you can make a viable profit.

If you can’t make a profit, you will need to consider what can be done to make it viable. This could involve changing cropping plans for poor performing fields or taking them out of cropping altogether and into the new ELMS scheme, partnering up with others to ensure machinery is used to full capacity or diversifying into non-farming activities or farming activities less dependent on subsidies, e.g. intensive livestock.

Being less dependent on the Basic Payment Scheme may provide more opportunities for increasing income from the sale of crops. Land may be farmed without abiding by regulations which are set centrally by the EU for a variety of countries with very different farming environments. This may encourage more efficient farming and an increase in yields.

The Agricultural Bill explained that the Basic Payment will be de-linked from the requirement to occupy land in the future. This along with the option for a lump-sum payment may provide financing options for those who are already looking to retire from the business. The Government will release a consultation on how this will work later this year which should provide more clarity. We particularly have concerns with how a lump-sum payment would be assessed for tax purposes which could give rise to tax liabilities up to 47% of the payment.

The higher rates will apply as following the purchase you will own an additional residential property and is this is not replacing your main residence. Unfortunately, a refund of the higher rates cannot be claimed once the properties have been merged as refunds are only available where a previous main residence has been disposed of.

There is a special exemption where a “subsidiary dwelling “ is purchased with a house. As long as the smaller dwelling is purchased in the same transaction as the main dwelling, it is valued at less than one third of the total purchase price and it is within the grounds of the main house then you are not treated as buying two dwellings.

When looking at the 5% surcharge you must consider any residential properties owned, regardless of where they are located. However, in some case property owned overseas may not cause the surcharge to be payable on a UK purchase, perhaps because the overseas property is valued at less than £40,000, or the beneficial ownership sits within another party. There are many types of ownership, such as certain usufruct rights, which mean that the legal owner would not be treated as owning a major interest in the property, so it would not count for the purposes of the 5% surcharge. If you have an overseas property with unusual rights in place it is worth seeking further advice.