Idyllic British farming scene of a tractor in a field of Rapeseed in the Peak District National Park.

Defra have launched the Agricultural Transition plan 2021 to 2024, outlining the future as we move from direct payments to paying farmers to improve the environment, improve animal health and welfare and reduce carbon emissions.

Basic Payment Scheme: what you need to know about Farming BPS changes.

Direct Payments in England will be phased out from 2021 to 2027 and details of the percentage reductions have now been released by Defra.

Payments will be reduced progressively with larger reductions for higher payment bands. In 2021 Everyone will receive a 5% reduction on their first £30,000 of payment. Above this, £30,000-£50,000 will be reduced by 10%, £50,000 -£150,000 by 20% and more than £150,000 by 25%.  You can use our online calculator to see what your payments will be going forward.

Now the reductions are known it is important to reflect these amounts in your up-and-coming budgets. Ensuring your budgets are as realistic as possible should help cash flow planning going forward.

Payments are to be ‘delinked’ from land in 2024 and the option of taking a lump sum payment will be made available. In addition to this, farmers who wish to retire will be offered to take a lump sum through an ‘exit scheme’ from 2022. Both options are subject to further consultation in 2021 and we await confirmation regarding the tax treatment of any lump sum received.

Other schemes

With the loss of BPS becoming more real it is time to focus on what else is available. The new Environmental Land Management Scheme (ELMS) will be made up of 3 components:

  • Sustainable Farming incentive: This will be available to all farmers for environmentally sustainable land management actions and will start in 2022.
  • Local Nature recovery: pays for actions that support local nature recovery and deliver local environmental priorities. This will be available from 2024.
  • Landscape Recovery: The full scheme will be available from 2024 and will support long term, land use change projects, for example rewilding where appropriate.

In the interim utilising the current Countryside Stewardship scheme could be considered as an opportunity to offset some of the reduction in income from lower BPS payments. Anyone who starts a countryside stewardship scheme after January 2021 will be able to transfer to the new scheme with no penalty at agreed exit points.

Farming Investment fund

A new Farming Investment Fund is due to be launched in December 2021. This will offer funding for equipment, technology and infrastructure that improves farm productivity and benefits the environment. It is important to consider the timing of any planned investment in plant and machinery and certain infrastructure on the farm.

Currently, the Annual Investment Allowance (AIA), which can give 100% reduction in taxable profits in the year of purchase, has been extended to £1,000,000 for another 12 months until 31 December 2021 before reverting to £200,000. AIA is only available on the net expenditure after any capital grants have been deducted.

Maximising profits

Diversification and securing alternative income sources together with consideration on how you may be able to maximise your trading profits are becoming increasingly important to farms as support structures change. This can range from increasing yields and price, reducing inputs to any form of diversification. Diversification could include utilising redundant farm buildings for storage solutions to the development of holiday accommodation on site.

It is important to discuss the implications of any planned diversification or significant investments with your accountant to consider the tax implication and ensure most appropriate business structure is in place. Talk to us about the upcoming Farming BPS changes or any agriculture accounting questions if you are in anyway unsure.

James Reader
James Reader
Jenny Batchelor
Jenny Batchelor

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