Farmers and landowners could face higher business rate bills by making minor changes to their businesses, the Central Association of Agricultural Valuers has warned.

Farmers are constantly altering their operations to boost their income and make the most of their assets. While many presume their agricultural activities qualify for exemption to business rates, even a small and sensible change to a business use may take land out of the exemption, leading to potentially large, backdated, tax bills, says Jeremy Moody, secretary and adviser at the CAAV. “Not every acre of farmland is necessarily agriculturally exempt and more importantly, by no means is every farm building an agricultural building for rates.”

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For land to be classified as “agricultural” and therefore exempt from business rates, it must fall into one of the following categories: Land used as arable, meadows and pasture; wood plantation; land that exceeds 0.1ha and is used for poultry farming; a market garden, nursery, orchard or allotment; and land that is occupied with a building solely used for agriculture.

Land which doesn’t qualify for exemption is: Land occupied together with a house as a park; gardens; pleasure grounds; land used mainly for sport or recreation; and land used as a racecourse. “None of these are agricultural land for rates,” explains Mr Moody. “So, for example, a field with an occasional point-to-point use might attract rates.”

Buildings also have a separate set of exemptions. Agricultural buildings are defined as being associated with agricultural land and used solely in connection with agriculture. “Buildings will lose exemption if they are used for a secondary purpose, such as significant processing of produce or direct sales,” he says. “A shift from storing your own potatoes to someone else storing potatoes can become rateable.”

What is most important to remember is that any land or property deemed as having dual usage will become liable for business rates, he adds. “Farmers may find themselves with a large bill if more than 5% of the income generated is not covered under the agricultural exemption.” Solar wind and hydro are also facing large increases in rates: If the power is all used in the farm it may be exempt but if more than 5% goes into another business it may be rateable. “It is a pretty tight issue and really does matter.”

The definitions covering agricultural exemption from business rates are complicated and could easily catch farmers out, warns Mr Moody. “As councils now benefit more from business rate revenue they are increasingly clamping down on grey areas, so it’s important to stay ahead of the game. Take good advice, think about it in agreements for letting buildings and recognise that a good business idea may still be viable with rates.”

For more information visit www.caav.org.uk.