Saffery said a farm’s activities – both farming and non-farming – should be treated as one taxable business unit to ease problems that occur when the two income streams are taxed independently.
UK farmers are being encouraged to diversify their activities, and focus on non-farming activities, following a 46% rise last year in tourists visiting rural attractions around the country.
However, policies need to change, after figures supplied by the ICAEW showed that average farm profits fell by 26% for the year-end April 2003, despite this increase.
Martin Webster, partner at Saffery Champness said: ‘The nature of farming is changing dramatically, but the tax system is not evolving with it. The Inland Revenue needs to reflect the fact that farmers need to diversify to supplement poor farming incomes.’
Webster said the Revenue should allows farm losses to be set against other non-farming income and capital gains for the same or previous tax year to reduce any tax liability.
Currently, farmers will lose the right to use this ‘sideways’ tax relief if there has been seven consecutive years of losses and the eighth year remains loss-making.
Webster also warned that farmers would lose the inheritance tax exemption available on a farm business if they use their farm buildings for non-farming activities.
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