Financial Resolutions, 1978: Financial Statement, Budget, 1978. - Farm incomes and the taxation of farming profits
After decades of depressed and unstable price levels and insecure markets, the farming sector has, thanks mainly to our membership of the EEC, enjoyed considerable advances in income in recent years. In the coming years, farmers can continue to plan against the background of security of markets for their output. We have now a solid basis for greatly expanding the contribution of this sector to our economic well-being. This is an opportunity that must not be missed and the community looks to the farmer to exploit it to the full.
Everyone accepts that farmers should make their due contribution in taxation. It is the policy of the Government that this contribution should be equitable having regard to progress in the level of farmer incomes while, at the same time, bearing in mind the special nature of the agricultural industry and its development needs.
It was against this background that the Government undertook in the manifesto to make certain changes in the system of taxing farming profits. The Government intend to honour these undertakings and provision to give effect to them will be made in the forthcoming Finance Bill. I will briefly list these changes.
The notional basis of assessment will be retained as an alternative to assessment on the basis of accounts. Farmers will, however, be required to remain for three years with whatever option they choose because switching from one basis to the other could provide scope for unfairly minimising tax liability.
Full-time farmers will be allowed a single payment date in the income tax year, namely, 1 January. Consequently, the White Paper, or prebudget, estimate of revenue from full-time farmers in 1978 falls to be reduced by £5 million, that is the amount which they would have paid in September next under the former two-payment-date system.
Contractors' fees will be allowed as a deduction before assessment of income on a notional basis. Allowances will continue to be given for wages of employees who are registered for PAYE and social welfare purposes.
Full-time farmers will be allowed the amount of their preceding year's rates on land as a credit against their tax bill.
There will be a system of income-averaging for farmers. Discussions are being held with the farming organisations with a view to arriving at an appropriate system. Discussions are also taking place on the system of valuing breeding livestock for tax purposes.
As I have already said, it is our policy that taxation of farmers takes due account of progress in farmers' incomes. These incomes have more than doubled in the four years since the introduction of farmers' income taxation in 1974. In the income tax year 1977-78 the yield from taxation of farming profits is expected to be about £14 million.
This return must be regarded as low in the light of the increases which have taken place in farm incomes. The Government have therefore decided to increase from 65 to 90 the multiplier which is used to calculate a farmer's notional income.
The Government have also decided that the threshold for liability to income tax should be lowered from £75 rateable valuation to £60 rateable valuation. This will bring a further 7,000 full-time farmers into the tax net, making about 22,500 farmers in all liable for income tax. The effect of the foregoing measures is that farmers will pay about £24 million in tax in the income tax year 1978-79.
An announcement has already been made by the Minister for the Environment to the effect that farmers with rateable valuations of £75 or over will no longer be eligible for rates relief by way of the agricultural grant, resulting in a saving to the Exchequer of about £7 million in 1978. The Government have decided that the rateable valuation ceiling for determining eligibility for such rates relief will in future be the same as the valuation threshold for income tax liability. The effect of this decision will be that in 1979 farmers whose rateable valuations are £60 or over will not benefit from the agricultural grant but they will be able to set their 1978 rates against their tax bill.