“The buzz around the GB wine sector continues and it’s not just the bees – but it’s important for entrants to recognise and plan for the risks,” says Peter Harker, a Partner at Saffery Champness, and a member of its Landed Estates and Rural Business Group.
The latest data from trade body Wine GB shows that there are now some 3,800 ha under vines in England and Wales, up 175% in the last 10 years, including estimated plantings in 2021 of 1.4 million vines. That said, the risks are evident in reports on production where 2020 volumes were down to 8.7 million bottle equivalents from 10.5 million bottles in 2019. Yields were affected by weather – late frosts and then warm conditions leading to lower bunch weights and smaller berries according to Wine GB. However, 2020 sales were 30% up overall on 2019, with online and retail sales showing the highest levels of growth.
Peter Harker added:
“A typical vineyard takes at least four years from initial planting of root stock to the harvest of the first full crop. Quoted costs for setting up from scratch are around £25,000 – £30,000 per hectare so cash flows will require careful planning and consideration. Initial expenditure, over and above land (if purchased), includes plant stock and hardware/trellising; expert ecological and viticulturist assessments; labour costs for planting and maintaining the vines; and outlays for processing, marketing and selling.
“The importance of cash flow forecasting at the outset will ensure that an understanding of expenditure levels is firmly established. This will help to plan any funding requirements and to inform decisions on how the funding should be raised. External funding from banks or investors will require a forecast as part of a business plan before they will lend or invest.
“The first years of a new vineyard as a standalone enterprise will inevitably show losses. This is, of course, as a result of both the delayed income stream as vines develop, and the initial cash outlay required for set-up costs and capital investment.”
What are the important points to note from a tax perspective if embarking on a new vineyard enterprise?
For a start-up business it is important to recognise that expenditure incurred prior to the commencement of trade – where income starts to be earned – cannot be offset against other profits until trading commences. Once the vineyard starts to trade, losses may be sideways loss relieved in accordance with the normal restrictions. Alternatively, losses may be carried forward indefinitely against future profits of the vineyard. Losses may be increased by capital allowances, which are granted on expenditure made on capital items such as plant and machinery for use in the trade and can provide a very valuable tax relief.
Where an existing farm business diversifies and puts a part of the farm unit or estate under vines, then it will be able to offset losses against other farm profits for the new venture from day one.
Averaging also provides a mechanism to balance good and bad profit years – from April 2016 the averaging rules were extended to cover a five-year period. This is particularly relevant for the vineyard sector as, as the latest data from Wine GB shows there can be good years and bad years where production and yields are lower.
Because of these risks, and in common with many other farming enterprises, it is important that proper tax advice is sought early to ensure that such tax impacts are correctly modelled and effectively planned for.
