Planning ahead for Vineyards
Vineyard owners will be stretched in many different directions this year due to the COVID-19 disruption and to add to the to-do list is to look at some of the forthcoming tax changes which could also have a significant impact on longer-term financial and business planning.
A consideration to vineyards this year is the recent changes to Capital Allowances and how this might cause a ‘tax trap’ depending on the timing of their financial year-end. The UK Government is encouraging businesses to invest in plant and machinery by allowing businesses to receive immediate tax relief in the form of the Annual Investment Allowance (AIA). The AIA allows for a 100% allowance of up to £1million of expenditure on plant and machinery incurred up to 31 December 2020, the allowance is due to drop to £200,000 from 1 January 2021, so timing of the expenditure is key. The position is more complicated for accounting periods which straddle the transition and the level of AIA available on the proportion of the accounting period falling after 31 December can be very limited.
With recent reports of consumers favouring local producers and increasing spend on alcohol during the pandemic, which may have benefited many vineyards, vineyards now have to consider the changing demands and its impact on their operations, this change will have brought more administrative and logistical issues, especially if selling more directly to the public rather than the trade. With the longer-term recovery for the hospitality sector looking very uncertain, vineyards need to consider their options and future markets.
While the agility many businesses have shown in adapting to the pandemic has been impressive, vineyards should now be focusing on their longer-term plans and that could mean looking at international trade. With the end of the Brexit transition period on 31 December 2020, the impact of trade negotiations is still ongoing and are likely to continue for many months and possibly years.
International sales create a whole host of new challenges which many UK producers are not set up to handle. Read more on the international future of UK vineyards here.
Another area which has been growing in popularity with vineyards is UK tourism. Opportunities for offering a more bespoke ‘brand experience’ for the Instagram generation are endless and in the short term, more people might be looking for a ‘staycation’.
It is important however to look at the expenditure needed to provide access, build car parks, convert buildings, professional fees etc. With this is the costs needed to establish a tourist offering and to get it up and running which includes risk assessments, staffing and training, insurance, business rates, compliance, ongoing marketing and dealing with customer services. This list can be quite long depending on the ambition of your project. Naturally with this level of expenditure is the need to manage cash flow and whilst there are still some grants and funding available in certain areas there will be much greater financial scrutiny to ensure the accuracy of the projections.
A few key questions to ask yourself now and to review are:
- What is the structure and inheritance tax exposure of the existing business and would a new enterprise or elements of it be detrimental to the tax positions of the business owners?
- Will a new enterprise or elements of it expose the owners to additional risks which could be mitigated or ring-fenced by creating a separate trading entity?
- How will the enterprise be financed and over what period and will future profits be retained or repay financing and fund future development?
- Is the enterprise likely to make tax losses in the initial phase and what potential is there to offset these losses prior to generating a profit?
- Would a proposed diversification project provide an opportunity to facilitate succession and incentivise a younger generation of family members?
- Is the timing right and do you have the skills, interest and time to manage it effectively?
At Kreston Reeves we have a team of specialists who advise clients on all aspects of owning and operating a vineyard and international trade. Contact us here.
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