Becoming a business

[Stonehead]

At the moment, our croft is run purely on a self-sufficiency basis - we aim to produce enough for own needs with any surpluses simply helping to meet some of the costs.

However, we now have enough demand that we could produce and sell 10 pigs a quarter (a turnover of more than £7500 a year), plus lamb, eggs, vegetables and honey.

I've started considering whether to turn the croft into a small business, if I can juggle my childcare commitments and meet the demands of a business. (I'd need a tractor and machinery, more livestock, feed and seed, more pig huts and fencing, plus a lot more insurance. Then there are all the extra regulations to meet.)

However, advice and investment are proving hard to find. The Scottish Business Gateway advice service is rather dismissive of starting any sort of farming business, while the grants focus on under-30s and fast growing businesses (can you see me employing 15 people within three years?).

Loans would have to be guaranteed against the croft itself, but while we have around 45% equity the mortgage provider is very reluctant for us to have a further loan against the croft in case of a property downturn. They want us to keep sufficient equity as a cushion against the possibility of house prices falling and us going into negative equity.

There are many attractions to remaining a self-sufficient croft, but setting up as business would mean offsetting many of the capital costs against the actual returns and some cash flow would be very useful (and better than working part-time for someone else).

Has anyone else looked into this or done this? Any advice would be appreciated.

Stonehead

[shiney]

I don't have any help I'm afraid Stonehead, but I used to work for the Min of Ag once. All I can tell you is that crofters were the worst off for government and EC handouts. All the big landowners did quite nicely, as expected!

I think it's a good idea if you could get some help financially. Good luck!

[Stonehead]

I don't have any help I'm afraid Stonehead, but I used to work for the Min of Ag once. All I can tell you is that crofters were the worst off for government and EC handouts. All the big landowners did quite nicely, as expected!

I think it's a good idea if you could get some help financially. Good luck!

I know exactly what you mean. We have an old cottage - weathertight but unihabitable - and thought we might be able to get a grant to help do it up so we could rent it out. Farm diversifcation and all that. But, while there are housing improvement grants, they are only available to people with more than three houses to refurbish. Developers, in other words.

Same with the SFP. We thought we could get a few quid to help with some of our costs, but no, we had a non-viable business plan. Meanwhile, the big farm down the road (with no mortgage and loads of dosh) is now being paid not to farm. He gets more money from not raising cattle and growing crops, then he did from farming.

I wish someone would pay me for doing nothing.

Stonehead

[shiney]

It's always the same the more you have the more you get!


We had a grant for Organic Farming (this was about 12 years ago) Guess how many takers there was for that? ONE.

Have you looked at EU grants rather than just what the UK has to offer? Is there such a thing?

[The Chili Monster]

Hi Stonehead

I've no idea how you would get any financial help via grants and loans. I agree with you that most funding for business start-ups does seem biased towards fast-growing businesses, young people and the over 50's.
I'm in the process of setting up a business but the nature of my service rules out financial help. However, I am blessed with help from my local Enterprise Gateway which focuses on businesses that are less than three years old. I've has free courses, I am kept up to date with grants etc and I have someone to go over my business plan or cast an eye on my marketing plan.
My Gateway Director is obviously more enlightened than your business link people since I regularly meet people through the Gateway who are looking to start up an organic trade/fair trade/market garden business and they are afforded the same excellent level of service.
The only thing I could advise you is that you would be entitled to claw back at least 40% of the cost of tractors, trailers etc in Capital Allowances dated from the date of purchase (ie when you bought it and irrespective of method of payment). So perhaps a small, short-term loan?

[Stonehead]

Thanks ChiliM. That's the sort of info I was after. Unfortunately, the idea of farm shops/organic smallholdings etc has yet to really take off in NE Scotland at least. There are some, but not the extend of southern England.

Most of the suggestions I've had up here are to to use the outbuildings for a "proper" business. I have a lot of management, media and IT skills, so I'm usually told I should put them to use and set up a business based on those.

Problem is, while I wouldn't mind using those skills to further an organic/fair trade/farm business, I don't want to go back to doing what I used to do - whether working for myself or not.

The other issue is that I'm expected to put in my own capital but the investment (in capital and labour) I've put in over the past couple of years seems to be ignored. I've spent thousands of pounds and thousands of hours improving fencing, building pens and huts, developing the vegetable and soft fruit growing areas, improving drainage, etc.

From the limited advice I've had, it seems I shouldn't have done that! I should have drawn up a business plan two years ago, set out what I was going to do by way of investment and then sort funding. Problem is, I didn't want to set up a business two years ago!

I'm not entirely sure that I want to do so now, but if I can provide something that people near me want and it provides us with some much needed cash then I have to consider it.

Thanks again.

Stonehead

[hedgewizard]

Stoney, you can still do that retrospectively if you can get the invoices together. Most suppliers will send you copy invoices if you ask for them, and then you can draw up your business plan as of two years ago and approach lenders saying "I'm on the third year of a seven-year plan and need finance now".

Beware what happened with Jimmy's farm though - although he's doing quite well at the business it's put him through phenomenal stress and he's ended up living a lifestyle a fair bit away from what he'd intended. This seems to be because he's following the interary dictated by how much he's borrowed.

Elsewhere in business the golden rule is "never guarantee with your own money" because if things don't run smoothly you need to be able to wind things up and walk away while it's sensible to do so. Not sure how that could be applied to your own croft though!

[Stonehead]

Stoney, you can still do that retrospectively if you can get the invoices together. Most suppliers will send you copy invoices if you ask for them, and then you can draw up your business plan as of two years ago and approach lenders saying "I'm on the third year of a seven-year plan and need finance now".

So why don't the advisers tell you this?

Beware what happened with Jimmy's farm though - although he's doing quite well at the business it's put him through phenomenal stress and he's ended up living a lifestyle a fair bit away from what he'd intended. This seems to be because he's following the interary dictated by how much he's borrowed.

Yes, that's one of the reasons I'm wary. I wouldn't mind generating a bit of income from the croft, but I don't want the business to become the be-all and end-all. That's not what I'm about.

Also, I'd still like to keep my bartering going - swapping homebrew, pork, eggs, chicken and vegetables for goods and services is much more my thing.

Thanks.

Stonehead

[The Chili Monster]

Hi Stonehead
Hedgewizard is right. If you plan to trade as a sole trader then your income arising from profits of your business from up to three years to the end of your first accounting period can be considered in the tax computation. This practice is restricted to new businesses. Unfortunately this does not extend to incorporated businesses (at least not in England & Wales).
I would suggest that, taking your projected profit of £7,500, once you had claimed your personal allowance of £5,035 your income tax liability is an estimated £1,965 x 10% = £196.50 (with respect to the current tax year 2005-2006). There is an additional National Insurance liability of £2.10 per week (collected by DD monthly or invoiced quarterly) plus an additional levy of 12.8% of your earnings above the £5,035 personal allowance which is payable with your Income Tax. However if you limit your earnings to below this allowance you can claim an exemption against the weekly NI contribution. PHEW.
In law there is no distinction between the business and the owner with repect to income tax. This has implications with respect to capital allowances, most significantly that anything that you use in part for personal use must be clearly apportioned and deducted for the purposes of the CA calculation. Cars are a prime example of this (and they entail special rules anyhow). You also need to exercise caution in that you would only be able use to allowances to reduce your tax liability to zero (ie you can't use it to create a loss since you are taxed on profit and not on turnover). Remember also there is, as ever with HMRC, a sting in the tail in that you are subject to capital gains tax on any plant & machinery, etc that you sell on for a profit and that you remain assessable for CGT on the proceeds of any insurance claim with respect to the theft or destruction of these items (in other words the taxman will look to recoup what he let you keep on buying these items).
As to suggestions to the kind of business you might like to run, you could claim the personal allowance on your profits from the croft plus one from any additional business (since they are not from the same source).
Did you mention that your OH was a teacher? Perhaps you could develop teaching resources using your media skills?

[Stonehead]

taking your projected profit of £7,500

That was turnover! Will reply more later - just nipped in for a glass of water before finishing off the fence.

Stonehead

[The Chili Monster]

that'll teach me to be less of a smartarse and read the damned information.

[shiney]

Yeah, but very useful information you've provided Chili!

Are you our resident tax expert? You could be a mine of information.

[Andy Hamilton]

I wonder if it is worth registering selfsufficientish as a business? I heard we can claim back electricity and also all the books that I buy. Even garden tools and seed I supose.

I mean we have never paid tax (shhh) but I don't think we have to as it can be classes as a self funding hobby or something, but do I still have to register?

[The Chili Monster]

*professional hat on
The tax man applies the so-called badges of trade -criteria that the IR uses to determine if an organisation is trading or not. If you like, I shall PM them to you, Andy.
It's unlikely that you'd recoup the cost of the seed (it's stock technically) and at best you'd only be able to claim a proportion against any tools (since they are part in private use, unless the allottment is part of the business and appears on the rent book as such).
However, you'd be able to claim against the costs of setting up the site. Any software that you brought in for use are legitimate expenditure and any hardware is subject to capital allowances.

classes as a self funding hobby or something, but do I still have to register?

Yes, unfortunately there is no escape for clubs or charities and in fact this will kind of shove you down the corporate tax route.

I'm not exactly a tax expert, Shiney but I'm nearly a fully-fledged accountant and so I have to know a certain amount about the tax system.

[Andy Hamilton]

Yep if you could pm me I sometimes get concerned about the tax we might have to pay.