RURAL business development is being held back by taxation inequalities, the Country Land and Business Association (CLA) has told the Government.

The CLA's regional director, Dorothy Fairburn, says: "Farm diversification into non-agricultural activities is essential for the survival of rural businesses and growth of Yorkshire's rural economy. But the current tax regime makes distinctions between different types of businesses and this is a major hindrance to many country businesses, which are increasingly of a mixed nature with a number of interconnected enterprises."

Although the Government has welcomed the Tenancy Reform Industry Group (TRIG) recommendations on ways of helping the farming industry to diversify, the CLA is urging Chancellor Gordon Brown to sort out the tax muddle.

"For example, a farm with a farm shop, tourist accommodation and commercial lettings of redundant barns is a mix of Schedule A and Schedule D activities - an artificial division under the current tax system. The farmer has to prepare separate accounts for each of the diversified activities, in order to complete his or her income tax returns. In addition, some of the income arising from diversification and chargeable under Schedule A will not qualify as 'net relevant earnings' for pension contributions and will thus not be eligible for relief from income tax."

The CLA is urging Gordon Brown to remove the fiscal boundary between Schedule A and Schedule D and treat all activities carried out under a single economic enterprise as one business for income tax purposes.

The CLA is also making two further recommendations to the Chancellor. Firstly, that landlords should be granted the right to defer payments of capital gains tax from the sale of assets when the payments are re-invested into let units, as recommended by TRIG. Secondly, that the definition of agriculture, for the purpose of agricultural property relief from inheritance tax, be widened to ensure both landlords and their tenants can consider diversification without the landlord incurring future capital tax liabilities - also recommended by TRIG.

Updated: 12:09 Wednesday, December 17, 2003