New Accounting Standards Likely to Affect Reporting of Farm Profits

Further to the change from Single Farm Payment (SFP) to the Basic Payment Scheme (BPS) from 2015, the recognition criteria for grant income for accounting purposes has also changed with the introduction of the new Financial Reporting Standard (FRS) 102.

The FRS was applied to medium and large companies from 1 January 2015, and will apply to small companies from 1 January 2016. It also applies to sole traders, partnerships and trusts that meet the relevant size criteria.


Subsidy under the BPS will only be paid where there is both eligible land and entitlement, eligibility determined by a strict set of criteria including that land being held on 15 May and eligible for the whole calendar year. Where there is land with no entitlement then payment under BPS cannot be claimed; the same is the case where there is entitlement without or in excess of eligible land.

Crucially, for farming businesses, recognition of grant income is based on performance conditions, such as the greening requirements, and as these conditions relate to the entire year, the accounting recognition of income cannot happen until 31 December.

Peter Harker, Director of UK top 20 chartered accountants Saffery Champness, and a member of the Landed Estates and Rural Business Group, says:
Under the previous UK GAAP (general accepted accounting practice) most farms were recognising an appropriate amount of subsidy on an accruals basis meaning that for some year ends income was being recognised before the subsidy year had come to an end. However, with the introduction of FRS 102, and depending on the year end for the accounts, this could result in much less subsidy being recognised, and thereby a far lower profit, if any, reported in the year’s accounts when this standard is first adopted.

The upside is that in delaying recognition of income this will also delay when tax on that income is due so, where the year is less profitable because of this change, the farm business will receive a lower tax bill. The downside is that a potential slump in profits for the year in question could jeopardise access to finance, affect bank covenants and so on.

How businesses with different year ends will be affected by the new rules on grant recognition is shown in the following table:

Year end


30 June 2015 (Old UK GAAP)

6 months 2014 subsidy, 6 months 2015 subsidy

30 September 2015 (Old UK GAAP)

3 months 2014 subsidy, 9 months 2015 subsidy

30 June 2016 (FRS 102)

6 months 2015 subsidy, no 2016 subsidy

30 September 2016 (FRS 102)

3 months 2015 subsidy, no 2016 subsidy

Saffery Champness is a pre-eminent adviser to private clients and their business interests, providing market-leading accountancy, tax, audit, business advisory, trust and fiduciary services. The firm also specialises in advising charities and not-for-profit entities, entrepreneurs, international individuals and businesses, professional and consultancy businesses, as well as those in the sports and creative industries.

Founded in 1855 by Joseph John Saffery, the firm is over 160 years old and is currently the 12th largest accountancy firm by UK fee income.

The Landed Estates and Rural Business Group is headed by a team of 17 partners and supported by over 80 staff. The group advises farmers, landowners, and agricultural and rural businesses on financial and tax matters, particularly capital taxes and VAT.

Saffery Champness

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