Clarkson’s Farm – what advice would we give?

17 Aug 2021

tree in field

Clarkson’s Farm was first broadcast by Amazon Prime in June 2021. It follows the efforts of Jeremy Clarkson to farm approximately 1,000 acres in Oxfordshire, and charts his successes and failures as a novice farmer over the course of a year.

But how does Jeremy’s approach compare to what we might expect from more experienced farmers and landowners? Our experts consider some of Jeremy Clarkson’s adventures in farming in light of the advice we might give farming clients in a similar situation…

Wilding

Peter Harker comments on Jeremy’s attempts to re-wild portions of his farm, as shown in episode four. Could Jeremy be blazing a trail for other farmers to follow?

Amongst the other activities that Jeremy gets up to in his year of farming, it was heartening to see an entire episode being devoted to ‘re-wilding’ matters, or ‘wilding’ as the program terms it. It is a very topical issue and the episode starts with the sobering fact that we have lost 140,000 miles of hedgerow since World War II and paints a bleak picture over the impact that the loss of biodiversity is having on our environment.

In Clarkson’s Farm, the scale of Jeremy’s ‘wilding’ ambitions are over a fairly small area. Primarily creating a pond and another wetland area. A relatively steep slope down to the pond area creates some entertaining TV moments, with machinery slipping and sliding up and down the slope, giving the Clarkson fans of old good ‘call backs’ to some vehicle-based comedy. However, the churn and compaction created by this activity would certainly not have been good for the soils and he is warned by his agent that this could be a potential breach of cross compliance and could result in a penalty of up to 5% of his Basic Payment Scheme (BPS). In Jeremy’s case, such a penalty could be something in the region of £5,000, a large potential loss to a farm with very narrow margins. However, in the end, his efforts are worth it. He manages to create an attractive pond, which is set to provide a great habitat to many different species. It also allows Jeremy to stock it with trout which he later sells to local pubs.

Rewilding schemes can bring with them interesting tax questions and challenges. Where land is taken out of agricultural production and ‘re-wilded’ it is very probably that the landowner will lose the availability of Agricultural Property Relief, which is a tax relief that provides up to 100% relief from inheritance tax (IHT). This does seem slightly perverse, as this is a potential tax disincentive from undertaking these sorts of schemes, which the government is actively trying to encourage.

The new ‘Environmental Land Management’ schemes that will replace BPS will reward these sorts of activities, however the spectre of losing APR will cause many landowners to pause for thought before committing to rewilding significant areas. In Jeremy’s case, it would appear that the ‘wilded’ land in question on Jeremy’s farm was probably not used for agricultural purposes beforehand, so perhaps there would not be such a loss and, in any event, the area was relatively small and so potential tax ‘loss’ on this would likely have been insignificant.

There is also the availability of Business Property Relief (another sort of IHT relief) that needs to be considered and where this is available over an estate/farm, the loss of APR may prove to be a moot point. The fact that Jeremy was able to start up a business of ‘rearing’ and selling fish would be helpful to any considerations over the availability of BPR.

If Clarkson gets his much demanded second series it will be very interesting to see these projects re-visited and how the introduction of ELMs schemes may further change his decisions over both land use and management.

Harvesting

David Sedgwick comments on the final episode of Clarkson’s Farm, in which Jeremy manages to harvest his crops, but the many challenges he has faced over the series mount up and his profits, ultimately, total just £144. David considers Jeremy’s challenges – how typical are they for the farming sector as a whole?

The finale of Clarkson’s Farm see’s Jeremy and Cheerful Charlie review the financial performance of his harvest. The moment of truth for the operation on the ground and the harsh realities of farming laid bare.

Growing up on a working farm, I am all aware of the love affair farming holds over people, as seen by Jeremy and his merry team throughout the series, but it is refreshing to see the cold realities made clear to those who tuned in.

Farming is not for the faint hearted, it is equally as rewarding as it is unrewarding, you are at the mercy of the elements, the markets and the consumer. 

The moment of truth for the year was – “the worst year for farming since 1976”. 

Diddly Squat Farm had returned a net margin on its arable operations of £144. This was before the uptick of a subsidy payment, but also before further non-direct costs and administrative expenses. The reality for the farm, I suspect, as it is with many, would be a loss for a year of hard work and investment, along with a net cash outflow. 

One would hope that farming for seven days a week, 52 weeks a year, over a 1,000 acre farm would result in a better return, at least enough to ‘wash its own face’ and allow further investment – after all, not all farms as Jeremy noted “have Amazon following them around”. 

There is a sea change already happening in the rural economy. Direct payments are being phased out from 2021 through to 2027 and so income levels for farm businesses will fall over the transition period. Subsidy payments are due to fall by 7% in 2021, falling further each year by 16%, 19%, 24%, 25%, 33%, 50% and then fully falling away by 2028. 

The government has guaranteed that it will match the current annual support packages available to farmers until the end of the current parliament (2024). Funding removed from these schemes will be used to fund other agricultural schemes that are environmentally focused. 

Alternative measures have been put forward, providing some with an exit, understanding that in a high proportion of cases, removing subsidy payments, removes the annual profit from a farming enterprise. 

A lump sum payment policy will be offered in place of a farmer being paid annual direct subsidy payments during the agricultural transition period. The sums of money are probably not large enough on their own to provide wholesale change, but may likely bring forward some decisions for retiring farmers, but also allow for new conversations to be had between landlords and tenant farmers. 

Though Jeremy plans to carry on his operations – and Clarkson’s Farm will return for series two – what does the reality of sustained losses mean for the typical farmer?

HMRC recognises that the industry is volatile and they do not provide tax relief for ‘hobby farmers’, ie those that are making losses while farming purely for the lifestyle and not running their farm commercially.

If a genuine farmer makes a taxable loss, that loss can be offset against other income (ie property, savings or investment income) or capital gains in that year or the previous year (there are restrictions on how this can be done). If there is insufficient ‘other income’ or gains, then the farming loss can be carried forward to be used against farming profits in future years (assuming of course, there are profits in the future).

Because the ability to set such losses against other income is potentially valuable to taxpayers, if farming losses have been incurred for more than five consecutive years then, very broadly, the hobby farming rules mean that future losses can only be carried forward to be set against income from the farming trade, if such profits are ever generated. Similar rules apply for farming losses within companies.

Under certain circumstances, a farmer’s taxable results can be averaged over either the last two or five years. This provision recognises the potential volatility in faming profits and aims to smooth the tax and cashflows associated with the highs and lows of the farming industry. The averaging provisions can however be ignored altogether and simply pay tax on profits as they arise. 

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