In recent years, in conjunction with volatile milk prices and other cost pressures, many rural and agricultural businesses have looked to diversify their offering. As well as their core business operations, farmers are also hosting fishing and clay pigeon shooting events, adding value through selling ice creams, snacks and accommodation and expanding into alternative agricultural products such as livestock and crop.
Many farmers see this adaptation as fundamental to the profitability and viability of the farm. However, farm diversification is not guaranteed to boost your farming business and can be a complex process. As farming often brings unique tax reliefs and rules, there are potential tax consequences that need to be considered when using land for alternative activities. If you are contemplating diversifying your farm it is advised that you seek sound and proactive tax planning advice.
Is diversification right for your farm?
There are many benefits that diversification can bring to your farm, and it is no surprise that nearly half of all UK farms use some form of diversification in their farming business. The biggest driver of diversified activity is the potential increases to revenue that this may bring; some farms earn significant additional revenue through extending their offering.
There are many opportunities for farmers who are thinking of diversifying, both agricultural and non-agricultural.
Some examples include:
- Opening retail outlets e.g. selling ice cream or opening a farm shop
- Hosting events e.g. fishing tournaments or clay pigeon shooting
- Rural tourism e.g. providing accommodation and breakfast
- Alternative livestock products e.g. goat dairying
- Alternative crop products e.g. selling specialty flowers
Before you diversify
Before making any plans to diversify, it is important to speak to an advisor to seek appropriate accounting and taxation advice. In order to determine the viability of any ideas you will have to assess the current financial situation of the farm and consider any potential tax consequences that diversification may bring, such as Capital Gains Tax (GCT) and VAT planning opportunities. After this, you will need to prepare a business plan, financial projections and a growth strategy for the farm following diversification.
Although diversification is an attractive opportunity, there are a number of potential tax consequences that need to be considered, which we cover in this article.
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Martin Wilmott acts as lead engagement partner for a wide range of corporate and non-corporate clients in the Doncaster office, especially in the Legal and professional, agricultural, transport, property and construction, manufacturing, healthcare and hospitality sectors. For more information or advice on anything covered in this article please contact Martin on [email protected] or 01302 367 262.