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Act Now to Reduce Farm Tax Bills, Warns Old Mill

Farmers could face some large tax bills this year, at a time when cash flow and profit are under serious pressure, a leading farm accountant has warned.

With a number of commodity prices having fallen sharply over the past year, many farming businesses are feeling the squeeze, says Dan Knight, senior manager at Old Mill Accountants and Financial Planners. But given the tardy nature of the tax system, producers could face potentially hefty tax bills arising from the previous year.

Dan Knight, senior manager at Old Mill

Dan Knight

“During periods of downturn business owners frequently allow tax planning to drift to the back of their minds and assume that a lack of profits means that there are no tax implications to contemplate,” says Mr Knight. “However, there are many issues that should be kept in mind as we navigate through this challenging period.”

In the first instance, those having to pay tax bills should consider the impact on cash flow, and act to reduce or delay the outlay where possible. “For example, Farmers’ Averaging and reducing any excess payments on account can diminish the tax payment profile,” says Mr Knight. “Having the business accounts drawn up soon after the year end will mean you can understand your tax position and manage it accordingly.”

For those who can afford to invest, now could be a good time to improve farm efficiencies while also reducing taxable profits, he adds. “The Annual Investment Allowance is set to fall from £500,000 to £25,000 on 1 January 2016, so providing the capital can be raised investing now is particularly attractive.”

With the continuing pressure on incomes, many farmers are considering alternative means of bolstering cash flow, from letting unused space to more involved farm diversification projects, says Mr Knight. “An additional income stream may be just what the business needs, and with careful planning it could also benefit the family in the longer term. Also, the relaxation of planning rules and Permitted Development Rights have made some of these projects more straightforward than ever.”

However, farmers considering any diversification project must think through the resulting tax implications first. “Changing the use of an asset can have significant tax implications,” he explains. “Due to the scale of farming asset values, it is often vital to retain relief for both Capital Gains Tax and Inheritance Tax if succession plans are to be implemented effectively and tax efficiently.”

Similarly, diversification projects often carry additional complications in terms of VAT. “Non-farming projects, especially those that include land or buildings, can trigger the more intricate areas of the VAT legislation. It is vital that developers understand the implications so as not to fall foul of the rules.”

Old Mill Accountants

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