Delinked payments are ending, SFI26 has closed and Wales, Scotland and Northern Ireland are on different paths. Here is how scheme money is taxed and recorded, as of October 2026.
Revenue scheme payments such as delinked payments are taxed as income, and capital contributions are treated differently. In England, delinked payments end after 2027 and are capped at £600 for 2026 and 2027, SFI26 and Capital Grants 2026 are closed, and Countryside Stewardship Higher Tier is open for expressions of interest. Grants are generally outside the scope of VAT when nothing is supplied in return. Keep agreement papers and evidence: SFI26 asks for seven years after the agreement ends. See our BPS phase-out update.
Mostly yes. GOV.UK says delinked payments are taxed as income. HMRC's manual explains that the test for a grant is its purpose: revenue grants are normally trading receipts, and capital grants are normally not. Annual payments for managing land under an agri-environment agreement are plainly income for tax, and a lump sum for managing land for a period of years is not made capital by the argument that the land is sterilised.
Contributions towards specific capital spending under an agreement are capital receipts, and the manual says that in cases of doubt you should examine the agreement and the correspondence behind it. I could not find HMRC wording that names SFI, so I would apply the same purpose test and check the agreement with your accountant.
Which tax year a payment falls into depends on how the accounts are drawn up. See our guide to cash basis versus accruals, and agree the treatment with your accountant before the year end, not after.
As of October 2026, this is the position on GOV.UK funding page and the scheme guidance. Things have moved quickly, so check the page before you plan around any line.
| Scheme in England | Position as of October 2026 |
|---|---|
| Delinked payments (replacing BPS) | 2027 is the last year. For 2026 and 2027 the reduction is 98% on the first £30,000 of the reference amount and 100% above it, so the most a farm gets is £600. |
| SFI26 | Closed for applications. Window 2 closed at 3:48pm on 22 September 2026 once the budget was allocated. |
| Capital Grants 2026 | Closed for applications since 1 September 2026. |
| Countryside Stewardship Higher Tier | Open for expressions of interest, with no closing date listed. An expression of interest does not guarantee an agreement. |
| Landscape Recovery | Closed. |
SFI26 had a cap of £100,000 per agreement year, usually a three-year agreement, and payments in quarterly instalments. The wider story is in our blog on the BPS phase-out and where ELM stands. I could not confirm from GOV.UK whether or when SFI will reopen, so treat any date you read in the press as unconfirmed.
Each nation has its own schemes, and I have kept to what I could confirm. In Wales, BPS payments in 2026 are tapered at 60%, farmers choose on the Single Application Form between the Sustainable Farming Scheme and BPS, and BPS is to be phased out by 2029. Most universal actions under the Sustainable Farming Scheme ask for records to be kept for five years.
In Northern Ireland, the Farm Sustainability Payment replaced the Farm Sustainability Transition Payment for 2026, and DAERA says payments commenced on 1 September 2026. In Scotland, the Rural Support Plan 2026 to 2031 says Tier 1 will start from the current Basic Payment Scheme and requires meeting essential standards, which include whole farm plans.
The tax principles above apply in all four nations because income tax is a UK matter, but the scheme rules, dates and evidence differ. Use your own nation's paying agency for dates and rules, and ask your accountant if the farm has land in more than one nation.
Give each scheme its own income line, so that the accounts show delinked payments, stewardship or SFI payments and capital grants separately. That makes it easy to see how much of the farm's income is falling away as delinked payments end, which for many farms is the biggest change to cash flow in the next two years.
Match every receipt to the paying agency's remittance advice or payment statement, which for delinked payments the RPA issues each year with no application needed. Note the agreement number, the period it covers and the actions it pays for. A payment that arrives in a different month from the claim it relates to is a common cause of muddled books.
Keep scheme money out of the livestock sales and cost lines. If the farm has other income streams, our guide to farm bookkeeping and HMRC records explains the headings, and the Making Tax Digital thresholds show when the records must be digital.
Generally not. HMRC says a grant is not a supply for VAT where the funder receives nothing in return, and the label does not decide it: you look at what, if anything, is received for the payment. A legal power to award the funding is an indicator that it is a grant outside the scope of VAT.
That matters for the registration threshold, because taxable turnover excludes anything exempt or outside the scope. A scheme payment that is a true grant does not push you towards £90,000 (as of October 2026). Our VAT registration threshold guide covers the test.
I did not find HMRC text that names SFI, delinked payments or Capital Grants for VAT, so I cannot say there is a blanket rule for every scheme. If a payment looks like a fee for a service you supply, ask your accountant or HMRC. Do not put VAT on a scheme claim without advice.
A capital grant is not trading income, but it is not free money for allowances either. HMRC's capital allowances manual says a contribution towards qualifying expenditure is deducted from the expenditure, and the farm gets capital allowances on the net amount. That applies to grants from a public body, and it applies even if the grant arrives after the money was spent.
In practice, if an item costs £20,000 and a grant pays £8,000, the allowance is worked on £12,000. Illustration only: the real answer depends on the item and the agreement.
Keep the supplier invoice, the proof of payment, the grant claim and the payment from the agency together, so the netting is easy to show. Our guide to farm expenses, red diesel and capital allowances covers the basics.
Whether VAT on a grant-funded purchase can be reclaimed depends on whether the farm is VAT-registered and on the agreement. Check the terms.
Dated photographs, maps, invoices for work done, and a short diary of each action are the usual evidence. A photo with no date is of little use, and a diary written up months later reads like it. Keep them with the agreement, not in the phone.
Inspections of livestock records run on a different clock, covered in our guide to livestock ID inspections by RPA and APHA.
FarmHQ, the farm office app for UK cattle and sheep farms (in beta), keeps receipts and records in one place, and Ask Farmer Joe drafts while you confirm. It does not replace your accountant or agent. See FarmHQ pricing.
GOV.UK says 2027 is the last year of delinked payments in England. For 2026 and 2027 the reduction is 98% on the first £30,000 of the reference amount and 100% above it, so the most a farm receives is £600. Payments are planned as single payments from 1 August each year.
No. GOV.UK says SFI26 is closed for applications. Window 2 opened on 22 September 2026 and closed at 3:48pm that day after the budget was allocated. Check GOV.UK for any future offer, because I could not confirm whether or when it will reopen.
Not if they are true grants. HMRC says a payment is outside the scope of VAT where nothing is received in return, and taxable turnover excludes anything outside the scope. The registration threshold is £90,000 as of October 2026. If a payment is for a service you supply, take advice.
SFI26 rules say at least seven years from the end date of the agreement, or its termination date if earlier. The RPA can check by site visit, remote monitoring or desk-based checks. Keep dated photographs, maps, invoices and a diary of each action with the agreement.