For those farmers affected by the floods

Flood affected farmers in this area will welcome the news that the government has announced they can apply for grants of up to £35,000 to help them recover from the devastating effects of last winter’s weather which affected many farmers on the Somerset Levels.

The money comes from the “Farm Recovery Fund” which was set up by DEFRA after Prince Charles and a succession of politicians, including David Cameron, visited Somerset to see the grim reality of what was happening for themselves.

DEFRA opened the fund on 28th February and initially have been taking bids for up to £5000 per farm, but from 28th April, farmers who have been particularly badly affected can apply for additional funding up to a total of £35,000 in total. This includes any money they have already been awarded under the initial bid process.

DEFRA secretary Owen Patterson re-visited the Levels on 15th April to see how farmers are recovering which is when he announced the second phase of the grant application to help farmers meet the costs “putting flooded farmland back in to production”.

James Winslade, who is the beef farmer whose cattle we saw so dramatically evacuated as the flood waters rapidly rose, engulfing his farm and the nearby village of Moorland, said, “It’s good that the government has acknowledged the scale of the problem. We have insurance but it mostly covers damage caused by fire and not floods. I will definitely apply for this additional grant money. Unless I apply for this grant I will not cope”.

What is clear is that although the weather has improved and superficially the grass looks as though it is growing, the land which was flooded to a significant depth for several months will not be productive for some time. This will not only impact on the availability of grazing for cattle which should be outside now, but it will impact on the amount of fodder which will be able to be conserved for next winter.

Thus farmers such as James Winslade are facing extra feed bills now and well in to the future plus the additional costs of bringing the damaged pasture back in to production. This will clearly have a very significant impact on the finances of such farmers and that is not to mention the impact the flooding will have had on their own homes.

Therefore the new grant money will be an important boost to help the worst affected farmers get back on their feet but it will be, by no means, a panacea for all their troubles.

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk

Rural Payments Agency's online system

Last week saw a worrying glitch in the Rural Payment Agency’s (RPA’s) online system for claiming Single Payments, the application deadline for which is approaching on 15th May.

I for one was unable to log on to the system over the weekend of 12th and 13th of April and it is understood the problem persisted for some, well on in to the week. On contacting the RPA on Monday 14th April I was told that the problem was not in fact to do with the RPA’s own online system, which I hasten to add is generally excellent, but it concerned a problem being experienced by the “Government Gateway”.

At the time of writing it is not clear whether the problem has been conclusively resolved but what this does highlight is the potential fragility of relying entirely on online systems. This is of particular concern for the RPA who are intending to extend their reliance such systems when the new Basic Payment Scheme replaces the current Single Payment Scheme (SPS) in 2015.

The problems recently experienced were annoying but not catastrophic, but if they had occurred very much closer to the application deadline, the financial consequences of not getting the SPS application submitted on time could have been far more serious.

I am not suggesting we revert to the old paper forms but as our reliance on computers increases so too does our vulnerability to system failures or perhaps more worryingly online fraud of one form or another and in this context many farmers are probably quite exposed. This is because, for older farmers in particular, although many realise embracing computers is now a necessary evil , whether that be to deal with VAT returns or SPS applications, they are not familiar with the online “antics” of some fraudsters which are likely to be more familiar to younger or more frequent users.

Therefore, the government and RPA in particular are urged ensure that the government’s policy of “digital by default” does not leave elderly “non digital” farmers out in the cold and ensures the systems are robust so that all users are able to access the online systems at all times. After all the whole point of digital by default is to increase the efficiency and cost effectiveness of the delivery of schemes such as the SPS and if the systems are unreliable this will lead to frustration and potentially significant financial losses.

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk

Tax reliefs for farmers

Accountants are always advising farmers to manage their affairs carefully so as to be able to take full advantage of the potentially generous reliefs which may be available to them under the Inheritance Tax (IHT) regime.

However, according to Catherine Desmond of accountants Saffery Champness, the National Audit Office (NAO) is launching an investigation in to the misuse of Agricultural Property Relief (APR) and Business Property Relief (BPR), both of which are very important reliefs available to farmers which can reduce or potentially illuminate the need to pay IHT on death. But with an impending investigation by the NAO it seems inevitable that claims for such reliefs will be brought under ever increasing scrutiny.

Accordingly farmers are advised to review their farming business regularly to ensure any changes in farming structure, ownership or occupation do not impact on their potential tax liability.

For example recent changes in planning regulations may encourage some farmers to argue buildings are no longer in agricultural use but the flip side of that coin will be that the Revenue may look to claim such buildings have a value on which reliefs may not be available.

Similarly we will all have seen Solar Parks and other renewable energy projects popping up all over the place and it may be that these developments will change the IHT status of the land and possibly the wider farming business depending upon the scale of the project. Further, another popular device used by landowners, who want to be seen to be farming rather than letting land for IHT purposes, is a contract farming agreement whereby the landowner employs a third party to carry out the farming operations on their behalf. In simple terms arrangement involves the landowner/farmer paying for all inputs over and above the contractor’s charges and then the landowner/farmer benefits from the profits, or losses generated once the crop or other produce has been sold.

This exposes the landowner to the true risk of running a farm but in many cases, although the written agreement may be satisfactory, the reality on the ground may be very different with the contractor effectively “farming” the land while the landowner receives a payment which is more akin to a rent than profit. Such an arrangement may fall foul of scrutiny by the Revenue which could be very costly if this resulted in the value of the land being taxed at 40% rather than receiving 100% relief from tax under either APR or BPR rules.

So the message is that farmers who are growing older should sit down with the family and their trusted professional advisors to ensure they take advantage of any tax reliefs that may be available or are at the very least are appraised of the potential IHT liability if they were to die in a relatively short period of time.

This all seems quite sensible but very often families do not want to discuss the inevitable for one reason or another or professional fees are perceived to be too high and as a result such discussions may not take place until it is too late which in the worst case scenario may jeopardise the future of a family farm.

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk

Banks keen to lend to farmers

Banks are still keen to lend to farmers although the process of getting loans approved can still be quite tortuous as anyone who has recently tried to arrange a loan will be well aware.

However from my recent experience either valuing farms for banks or in helping farmers make loan applications for the Agricultural Mortgage Corporation (AMC), it is clear that competition between all the High Street banks is fierce and we often see “bidding wars” as each bank looks to undercut the other’s cost of borrowing.

The reason banks are keen to lend to farmers is because they generally have a very strong capital base which has been bolstered in recent years by the rise in farmland values. For example in this area we have seen the average value of land rise from around £3000 per acre in 2006 to around £7500 per acre today which is in stark contrast to the residential property market. However revenue returns on farms have not always matched the rise in capital values and this can be the stumbling block, with most banks now more concerned with the serviceability of borrowing than the loan to value ratio.

But in general this is good news for farmers as is the fact that some lending institutions such as the AMC have recently secured additional funding from the European Investment Bank (EIB) which means that for certain loans they can offer discounts on their standard margins of 0.8% which is a significant figure in these days of historically low interest rates.

Such discounts are unfortunately not available for the purchase of land or the restructuring of borrowing but they are available for investment in buildings and other equipment. Therefore if anyone is thinking of carrying out such work they should not only contact their existing bank manager but also consider contacting their local AMC agent to see if they can help.
  As AMC agents and valuers, my firm Carter Jonas, like many others is experienced in helping farmers and landowners through the often complicated process of convincing the bank’s credit team that the applicant is a worthy of taking up the proposed loan and in my experience it is the “early bird” that often catches the worm. Therefore if you think you may have a project that would attract the EIB funding farmers are advised to contact their local AMC agent or call me for free initial advice.

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk