A "paradigm shift" from agricultural subsidies to environmental incentives has sparked a call for clarity on how new payments will affect farmers' tax bills.

The Sustainable Farming Incentive (SFI) is part of a series of Environmental Land Management Schemes (ELMS) which will reward farmers for efforts to improve nature and habitats on their land.

They are being introduced to replace the EU system of land-based subsidies paid through the Basic Payment Scheme (BPS), which is being phased out after Brexit.

And HMRC (HM Revenue and Customs) now has a decision to make which will have a big impact on every farming business, said Mat Waters of Norfolk-based accountancy firm Lovewell Blake.

"BPS payments were taxed as income in the relevant period, appearing in the farming annual profit and loss account," he said "In simple terms, the subsidy provided an annual income at a fixed rate to support the farming businesses continuing to produce agricultural goods.

"However, the move towards ELMS not only sees the replacement of the BPS subsidy with incentives for more sustainable farming practices but there will also be funding towards creation of new habitats or returning farmland to its previous state.

"These new schemes will inevitably see arable farmland or livestock grazing land coming out of traditional production and used to generate increases in biodiversity and carbon capture.

"This paradigm shift replaces the tried-and-tested farm margin models with some unknowns which could act as a barrier to some landowners making business decisions, and potentially missing out on new, diversified income streams."

Mr Waters said the government's decision to keep capital gains tax rates at half those of income tax (except on residential property) meant that capital costs, especially in relation to land, are "unlikely to attract the same levels of tax relief, if any, as those going through the profit and loss account".

"So this change in policy must be backed up by clear and fair guidance on the accounting and tax treatment, so that landowners can review the benefits of each scheme through a financial lens as well as an environmental one," he said.