Following our popular ‘The Diversification Dilemma’ webinar earlier in the autumn, we are delighted that Gary Markham, director of farms and estates at Land Family Business, joined us earlier this week to talk through some of the key considerations for farms thinking of diversifying their businesses.
Gary opened the discussion saying: “Based on our client benchmarking, we know that on average 84% of our arable farming clients’ profit comes from the current BPS payments. Income from diversification has increased, whilst income from arable farming over the last three years has been fairly static.”
“It is clear,” he continued, “that with the Pathway to Sustainable Farming earlier this month, farms will need to think about finding additional sources of income to reduce that reliance on BPS contributions.”
Whilst this seems a daunting consideration for many and a time of huge change, at Arthey Associates we are clear that this is also a time of immense opportunity, when businesses take steps to diversify in the correct way.
“There are undoubtedly opportunities for our clients,” said Tom Arthey, director of Arthey Associates, “and it is great to see businesses thinking this way; however, it is really important to speak to experts like Gary and our team here to see what you need to consider when it comes to structuring your new enterprise.”
We would be delighted if you join us to watch Tom and Gary discuss farm diversification further on the video linked below – some of the key points are summarised below:
- Diversification can have many guises, including trading or investment income, with several knock-on effects from a tax, and particularly inheritance tax, point of view.
- Tax rates – 19% for companies, partnerships start at 20% but build up to 40% and even 45% – a huge consideration and implications on those different paths, so getting the right one for your structure is essential.
- Renting buildings out is a very popular and straightforward diversification with redundant farm buildings being used for livery and holiday lets most popularly, but there are some interesting tax implications there.
- Renewable energies are an opportunity too.
- There are ways to build up value in your business and spread it out amongst the family through setting up a new company for your diversification with different family members as shareholders – succession planning is a huge part of the diversification process.
- Sit down early and have succession discussions with your family to understand expectations and assumptions from everyone – the biggest contribution to a lack of profit in businesses is dysfunctional families.
- Get in early with your plans, you can do things like gifting land within agriculture to help structure the taxation and manage inheritance tax.
- Is the market there for what you are interested in doing? Market research is critical and be market led, not product driven. Speak to your accountants too, one that knows the family, and remember there may be grant funding that we can help you with too.
Arthey Associates can offer a full suite of services for those looking to diversify. We have the expertise to help you rationalise ideas and concepts, undertake market research, produce business plans and projections, put together applications for funding with lenders or via government grant schemes, obtain planning permission, assist with project management of the development, website building, marketing, PR and business administration from launch onwards.