A crop of ideas for more tax e fficiency · 18% per annum. However, assets using energy-saving...
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W ith profits dependent on yields, crop quality, selling prices and the costs of production, farmers across the county have important business decisions to make based on this year’s harvest and their expected trading results. If 2016 proves a poor season, sole traders and farmers in partnership may turn to ‘averaging’ as a form of relief for fluctuating profits. This is also useful if this year has been far more profitable than previous years, pushing income into the higher rates of tax. The practice allows farmers to average profits from the previous 1-4 years with this year’s to establish an average profit to assess on all years – the benefit being to avoid higher rates of tax in a year when the basic rate bands in another haven’t been utilised. If 2016 proves a profitable year, however, it may be time to reinvest in order to minimise the tax liabilities of the business. There are many opportunities available to the agricultural sector to achieve this: l All types of farming business are entitled to an annual investment allowance (AIA) – a 100% write-off against profits for qualifying capital expenditure. For the year starting 1st January 2016 this is £200,000, a large reduction on last year’s £500,000. Qualifying expenditure ranges from vehicles and implements to temporary grain silos and caravans for staff accommodation. l Since the abolition of agricultural buildings allowance in 2011 no tax relief is available on buildings, so although a new grain store may be desirable it’s not necessarily a tax-effective investment. Relief can, however, be claimed within the AIA for integral features or items within the building that can be deemed ‘plant and machinery’ – such as electrical systems, dryers, and automatic fire doors. It’s essential to have these items invoiced separately to ensure clarity when preparing the accounts and tax returns in order to claim the maximum tax relief available. l Many farms can utilise 100% of their AIA, at which point the rate of relief on additional capital expenditure falls to 18% per annum. However, assets using energy-saving technology could attract a 100% enhanced capital allowance – in some circumstances it may actually be worth paying a premium for assets on the Energy Technology List in order to accelerate the benefit of tax relief. l Repairs to the farm and equipment are fully allowable for tax relief and some expenditure can receive tax relief at more than 100%. The cost of dealing with contamination (such as removing asbestos or tackling Japanese knotweed) receives tax relief at 150%, and expenditure incurred on research and development can attract a rate of 230% relief – in some circumstances this tax relief can even be encashed as tax credits to assist with cash flow. For farmers (as indeed for many other businesses) it’s therefore important to plan expenditure in advance to get the best possible relief available – and imperative to keep good records. If you’re looking to maximise profits and reduce your tax, Stephenson Smart’s expertise, excellent friendly service and in-depth regional knowledge offers the perfect solution. Over 100 years of successful practice can’t be wrong! KLmagazine September 2016 00 A crop of ideas for more tax efficiency... OUR BRANCHES KING’S LYNN 01553 774104 FAKENHAM 01328 863318 WISBECH 01945 463383 DOWNHAM MARKET 01366 384121 MARCH 01354 653026 GREAT YARMOUTH 01493 382500 With the harvest season upon us, Claire Melton FCCA TEP of Stephenson Smart looks at various ways in which local farmers can re-invest in their business and minimise their tax liability When buying a business property which contains fixtures on which capital allowances can be claimed it’s imperative the vendor and purchaser agree a split of purchase price between the building and fixtures – otherwise the purchaser will not be entitled to claim capital allowances on them. Top tip...
Transcript of A crop of ideas for more tax e fficiency · 18% per annum. However, assets using energy-saving...
With profits dependent on yields,crop quality, selling prices andthe costs of production,
farmers across the county haveimportant business decisions to makebased on this year’s harvest and theirexpected trading results.
If 2016 proves a poor season, soletraders and farmers in partnership mayturn to ‘averaging’ as a form of relief forfluctuating profits. This is also useful ifthis year has been far more profitablethan previous years, pushing incomeinto the higher rates of tax.
The practice allows farmers toaverage profits from the previous 1-4years with this year’s to establish anaverage profit to assess on all years –the benefit being to avoid higher ratesof tax in a year when the basic ratebands in another haven’t been utilised.
If 2016 proves a profitable year,however, it may be time to reinvest inorder to minimise the tax liabilities ofthe business. There are manyopportunities available to theagricultural sector to achieve this:
lAll types of farming business areentitled to an annual investmentallowance (AIA) – a 100% write-offagainst profits for qualifying capital
expenditure. For the year starting 1stJanuary 2016 this is £200,000, a largereduction on last year’s £500,000.Qualifying expenditure ranges fromvehicles and implements to temporarygrain silos and caravans for staffaccommodation.
lSince the abolition of agriculturalbuildings allowance in 2011 no tax reliefis available on buildings, so although anew grain store may be desirable it’snot necessarily a tax-effectiveinvestment. Relief can, however, beclaimed within the AIA for integralfeatures or items within the buildingthat can be deemed ‘plant andmachinery’ – such as electricalsystems, dryers, and automatic firedoors. It’s essential to have these itemsinvoiced separately to ensure clarity
when preparing the accounts and taxreturns in order to claim the maximumtax relief available.
lMany farms can utilise 100% of theirAIA, at which point the rate of relief onadditional capital expenditure falls to18% per annum. However, assets usingenergy-saving technology could attracta 100% enhanced capital allowance –in some circumstances it may actuallybe worth paying a premium for assetson the Energy Technology List in orderto accelerate the benefit of tax relief.
lRepairs to the farm and equipmentare fully allowable for tax relief andsome expenditure can receive tax reliefat more than 100%. The cost of dealingwith contamination (such as removingasbestos or tackling Japaneseknotweed) receives tax relief at 150%,and expenditure incurred on researchand development can attract a rate of230% relief – in some circumstancesthis tax relief can even be encashed astax credits to assist with cash flow.
For farmers (as indeed for many otherbusinesses) it’s therefore important toplan expenditure in advance to get thebest possible relief available – andimperative to keep good records. Ifyou’re looking to maximise profits andreduce your tax, Stephenson Smart’sexpertise, excellent friendly service andin-depth regional knowledge offers theperfect solution. Over 100 years ofsuccessful practice can’t be wrong!
KLmagazine September 2016 00
A crop of ideas formore tax efficiency...
OUR BRANCHES
KING’S LYNN01553 774104
FAKENHAM01328 863318
WISBECH01945 463383
DOWNHAM MARKET01366 384121
MARCH01354 653026
GREAT YARMOUTH01493 382500
With the harvest season upon us, Claire Melton FCCA TEP ofStephenson Smart looks at various ways in which local farmerscan re-invest in their business and minimise their tax liability
When buying a business property
which contains fixtures on which
capital allowances can be claimed it’s
imperative the vendor and purchaser
agree a split of purchase price
between the building and fixtures –
otherwise the purchaser will not be
entitled to claim capital allowances
on them.
Top tip...
