What is Farming According to Financial Legislation?
Farming, as defined by the Income Tax (Trading and Other Income) Act 2005, holds the broad description of occupying land predominantly for the purpose of husbandry. For those not fluent in the tongue of the old farmhands, husbandry does not relate to finding a suitable spouse but rather refers to the cultivation of crops and the management of animals. Crucially, husbandry does not stretch its agricultural arms to encompass market gardening.
Income Tax Considerations for Farmers
Profits from farming are not just thrown into a pot and stirred like a hearty farm stew; they are given special treatment. Farmers may average their income for tax purposes, which can be as balancing as a scarecrow on a windy day—providing potentially lower taxes in years of bumper crops by spreading high incomes over leaner years.
Inheritance Tax Relief
When a farmer moves to the great farm in the sky, inheritance tax relief can come into play like a well-timed rain shower during a drought. A robust 100% relief may be applicable to the values of farmland and the machinery prancing over it, provided these resources were primarily used for farming by the deceased or a tenant. This relief is part of the broader concept known as agricultural property relief.
Reporting Standards for Agricultural Entities
The ledger of a farmer isn’t just filled with notes on sheep sheared and seeds sown. According to Section 34 of the Financial Reporting Standard Applicable in the UK and Republic of Ireland, special reporting rules are plowed and sown for entities steeped in agriculture. These include considerations around biological assets—you know, the living parts of the farm that moo, cluck, or grow slowly in the sun.
Related Terms
- Agricultural Property Relief: A tax relief that prevents the family farm from becoming part of Her Majesty’s treasury upon the owner’s death.
- Biological Assets: These are the belle of the ball in farm accounting, living plants or animals that are seen as assets because of the economic benefit they bring.
- Market Gardening: A sort of agricultural cousin often confused in family gatherings with farming, yet explicitly excluded under the definition of husbandry.
Suggested Books for Further Reading
- The Farming Game: Agricultural Management and Marketing by Bill Malcolm et al. – A deep dive into managing and marketing the agricultural business.
- Taxation for Farmers and Landowners by Barry Johnson - A thorough exploration of all things tax-related for those with mud on their boots and fields under their stewardship.
Donning your overalls and delving into the financial side of farming may seem daunting, but with the right tools and information, even tax forms can be plowed through with the ease of a seasoned farmer steering a reliable tractor. Happy cultivating!
