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JEREMY MOOD, secretary and adviser, Central Association of Agricultural Valuers reports an unexpected Revenue viewpoint on the sugar beet outgoers' scheme.
JEREMY MOOD, secretary and adviser, Central Association of Agricultural Valuers reports an unexpected Revenue viewpoint on the sugar beet outgoers' scheme.
FOR A SHORT period from late July until 15 October 2001 there is a limited opportunity for what amounts to trading in sugar beet contracts between growers. As a new activity this inevitably raises tax issues, alongside many other practical problems. The short period available combined with British Sugar's current intention that this be a one-off opportunity makes the swift resolution of these issues important to all acting and advising in the matters. The Central Association of Agricultural Valuers and other bodies are pressing the Revenue to come forward with its interpretation as soon as possible.
The main point for practitioners at this stage is the danger of jumping to conclusions. In particular three, perhaps related, assumptions should not be made:
(i) It should not be assumed that there is any automatic read-across from any other items in the agricultural world, such as milk quotas.
(ii) Nor should it be presumed that the trade will naturally be subject to capital gains tax.
(iii) Even where capital gains tax will apply, it should not be assumed that rollover or even retirement relief will be available.
Milk quotas, potato quotas, set-aside and livestock premium rights are each separate matters, operating under their own individual rules. Sugar beet contracts and sugar beet contract tonnage entitlement are just as idiosyncratic and completely distinct from them. In Common Agricultural Policy terms, the only quota involved is the national sugar quota which is managed by British Sugar, the only processor involved in beet sugar in the United Kingdom.
As a commercial matter (and not a part of the European Union's sugar regime), British Sugar has contracts with 'growers' under which they are to supply British Sugar with a pre-agreed volume of beet which will be paid for at prices protected by the volume control. Any excess beet (C Beet) will trade at prices that are usually much lower. Each contract is annual. However, the offering of new contracts is governed in detail under the terms of the Inter Professional Agreements reached between the National Farmers Union and British Sugar. In barest summary, the effect is that a grower who fulfilled his contract is entitled to the offer of a new one. Neither contracts nor contract tonnage entitlement have previously been directly and transparently tradeable.
The great majority of advisers (including the writer) readily assumed that transfers of contract tonnage entitlement under the Outgoers' Scheme would be treated under capital gains tax, raising issues of taper relief, the possibility of a 1982 base value and so on. However, the Revenue's first, and apparently strong, instinct is that sole trader and partnership vendors will be assessed to income tax. This does not seem essentially to be a matter of analytical logic but of the application of case law. The argument is that the sale of commercial contracts (especially where, as will almost always be the case here, it only relates to a part of the business) would fall under cases such as Van den Berghs Ltd v Clark 19 TC 390 and Vodafone Cellular Ltd v Shaw [1997] STC 734 to income tax.
If the Revenue maintains this view and it is upheld, this will radically change the net of tax receipts for vendors in many cases. Under income tax, those with substantial losses will have a receipt to offset against them and averaging may also help. There will not be the general protection that could perhaps have been offered by capital gains tax reliefs.
Purchasers seem likely though to be regarded as making a capital acquisition. The effect of this is that they will not be able to offset the cost against any income in the present year. However, should there (contrary to British Sugar's assurances) be future opportunities to trade, they are likely to have entered the capital gains tax regime with a clear base cost.
Those third parties (who, under some tenancy agreements, may include some landlords) who secure payment for enabling growers to have access to the scheme are again likely to be considered to have made a capital expense.
It does seem clear that, short of a statutory amendment, even where capital gains tax is involved, rollover relief will not be generally available. Unlike milk quotas and livestock premium rights, commercial contracts do not seem to lie within the categories of asset eligible for the relief under capital gains tax provision. So far as taper relief and the phasing out of retirement relief has not removed the attractions of rollover relief, this will affect the options for vendors. Perhaps at least as importantly, potential purchasers can not use the Scheme to use rollover funds.
Again, if capital gains tax applies, what is left of retirement relief would only seem to be available to those retiring from farming in general or perhaps arable farming in particular. Since for almost all farmers, sugar beet is but one enterprise unlikely to take up even a third of their land, there are likely to be few people who could say that they were retiring from just sugar beet farming.
This swift sketch and provisional analysis has been prepared to alert professionals to some of the many issues to be considered during the brief period the Outgoers' Scheme is open. It does not purport to be comprehensive – new issues and more detailed answers will emerge.
The author is a partner (together with Adrian Baird, Matthew Hutton and Richard Williams) in TACS Talk which is holding its second series of the October Countryside Taxation Conferences in York on 3October, London on 17October and Stonehouse, Gloucestershire on 31October. For a brochure, please telephone 01594 836128.
