CONCERNS have been raised that the first Budget from Chancellor Rishi Sunak might hit the farming sector.

Mr Sunak, the MP for Richmond in North Yorkshire, is due to present his Budget on March 11. Below are some comments on what it could mean for the industry.

* Amid reports that the Chancellor may remove rebated fuel in the Budget, the National Association of Agricultural Contractors (NAAC) said: "Agricultural contractors rely heavily on red diesel to supply essential farming operations to land managers and it is vital that this exemption is retained to maintain food production.

"In times of huge uncertainty, alongside a wet autumn, the industry is already struggling with financial reserves and the removal of the lower fuel duty would be a devastating blow that could push many contracting businesses to fail. By almost doubling fuels costs this would potentially add hundreds of thousands of pounds of input costs each year, which is currently unsustainable.

"There is no commercial, alternative ‘green’ fuel to replace diesel in agricultural machinery, removing any choice for the industry to switch fuels.

"Contractors are effectively farmers without land and they are now an integral and essential part of the vast majority of farm businesses."

CLA President Mark Bridgeman said: “The UK Government must recognise that farmers need to have access to red diesel to power agricultural vehicles, heat animal sheds and run grain dryers. A significant increase in operating costs at a time of so much uncertainty for the sector in terms of trade, future agriculture policy and inclement weather will put many farms out of business.”

“The agricultural sector is conscious of the need to reduce its carbon footprint and the new, more efficient generation of tractors will help. However, alternative electric technologies are still in their infancy. So if the UK Government is serious about a shift away from diesel, it needs to support investment to accelerate the availability of new technology.”

* Any changes to tax relief on agricultural property in the next Budget will “tear the farming industry apart”, the head of a leading firm of chartered surveyors has warned.

Paul Madeley, managing director of Shropshire-based Madeleys Chartered Surveyors, is concerned by reports ahead of the new chancellor Rishi Sunak’s first Budget that he may be looking at scrapping the Agricultural Property Relief, which allows farmers to pass on agricultural property under Inheritance Tax.

The current relief rate for agricultural properties is 100 per cent, but Mr Madeley believes any move away from that will see many farmers unable to invest in their long term future and keep their businesses for the next generation

“There has been a 100 per cent relief for as long as I can remember, and changing it is quite a serious thing, with big consequences for the farming community,” said Mr Madeley.

“This will be of detriment to the ordinary farmer who are often asset rich, but income poor. It would be one of the biggest shake ups that agriculture has seen, and it could tear the farming industry apart.”

Along with upcoming changes to the way subsidies are handed out to farmers, Mr Madeley believes that big changes of this nature are just adding to the uncertainty of farming in the future.

“It’s more important than ever that farming is properly supported,” he said. “Just look what is happening with Coronavirus, for example. There’s a chance that we’ll need to be self-sufficient, but taking away from farmers makes that less likely.”

* Martyn Dobinson, partner at chartered accountants Saffery Champness, and a member of the firm’s Landed Estates and Rural Business Group said: "There have been a number of possible significant changes mooted, including fuel duty, entrepreneurs’ relief, and inheritance tax reliefs for agricultural and business property."

Fuel duty

Having enjoyed an almost ten-year freeze, fuel duty could be in line to rise, despite a Conservative election pledge to hold steady, and an additional 2p has been speculated. Mr Dobinson said: "A rise in fuel duty isn’t just an extra tax on the motorist. It is a tax on business, and business services such as contractor overheads, deliveries and transport costs. If we don’t see a rise rolled out this year it could happen in 2021. An increase in fuel duty is, however, mitigated somewhat by fuel costs having fallen to their lowest for some time.

Entrepreneurs’ Relief

The Conservative Party manifesto promised review and reform of Entrepreneurs’ Relief (ER). This relief was introduced in 2008 and currently allows a ten per cent tax rate on eligible capital gains on the sale of a business, up to a lifetime limit of eligible gains of £10 million as opposed to the standard rate of capital gains tax of 20 per cent.

Mr Dobinson said: "With ER it’s not so much a question of will the rules change, but what will change. We don’t expect to see the relief abolished completely, as that would clearly be anti-business, but changes might include a reduction in the lifetime limit, a further increase in the required qualification period, an increased tax rate or the introduction of an age threshold. I think everyone agrees that change is coming."

Agricultural Property Relief (APR)/Business Property Relief (BPR)

Changes to APR and BPR reliefs from Inheritance Tax (IHT) have also received significant coverage. These reliefs are used extensively across the farming sector and have been the subject of reports and studies by various

groups over the last couple of years, including the Office of Tax Simplification, and more recently, the All Party Parliamentary Group (APPG) on Inheritance Tax and Intergenerational Fairness, which published proposals for radical reform of the IHT system earlier this year.

Mr Dobinson said: "The removal of these reliefs and resulting IHT charge on farmland and business property would be a major blow for the sector, not least threatening business scale going forward and succession planning. The removal of these reliefs could result in farm and estate businesses being broken up and sold to fund IHT liabilities, rather than passing intact to the next generation. With the current flux and insecurity across UK farming due to factors including Brexit and changes to subsidies, this would have huge repercussions for the sector."

Annual Investment Allowance (AIA)

The farming sector has benefited from a rise in the AIA which allows 100 per cent tax relief on purchases of qualifying plant and machinery up to £1 million per year. However, this raised threshold is due to end on December 31 and revert to the former level of £200,000 per year, unless there is an announcement to the contrary in the budget.

Mr Dobinson said: "Those looking to invest in new qualifying plant and machinery may wish to consider the timing of this investment, if they are to take full advantage of the current raised AIA."

Structures and Buildings Allowance (SBA)

On the plus side, the Structures and Buildings Allowance, which was introduced in 2018 and which currently provides a flat two per cent per annum allowance on qualifying expenditure, may be increased in the budget to three per cent. Qualifying expenditure includes that on new and renovated non-residential structures and buildings, including fencing, bridges, tunnels and retail space, and the cost is effectively written off over 50 years for tax purposes at the moment. Martyn Dobinson said: "An increase in the SBA, if it happens, could be scant consolation for the sector, with other widely anticipated changes pointing towards further difficult times ahead for farm businesses – but we will only know for sure when the Chancellor gets to his feet in a few days’ time."