With the deadline of July 31 to pay the tax bill fast approaching many farmers have been considering ways to mitigate their tax bills in the future. Agricultural tax experts are warning farmers against buying machinery in a bid to save tax, saying that business development opportunities are being wasted in favour of short-term saving.
Because machinery depreciates quickly, despite the attractiveness of using profit to stave off a higher tax bill, the longer-term implication means that the initial gains are eroded.
Careful planning is suggested rather than the knee-jerk reaction of ‘getting rid’ of profit. A five-year capital investment plan for the replacement of essential machinery only may be of longer term benefit to the business, particularly now that the rate of capital allowances (the statutory rate of depreciation that can be set against profits, which mat bear no relationship to the real loss in value) have been reduced to their lowest rates for decades.
There are other investment opportunities for farmers to consider as well as legitimate non-core business spending.
HM Revenue & Customs (HMRC) has published an online tax guide for farmers. They can get help from the taxman on completing tax returns and paying their bills.
Naomi Ferguson at HMRC said of the guide: “This e-learning guide is aimed at those new to farming, who might be unaware of their tax obligations, and the many experienced farmers who are currently diversifying, which can change their tax obligations.
“Starting your own Business is available online so that farmers can read it in their own time, when convenient. It’s in bite-sized sections, so doesn’t need to be read all at once.”
If farmers have short term cash flow problems they should contact HMRC (their accountant will advise them how best to do this) to discuss a ‘time to pay’ option, which can help avoid additional surcharges being imposed, although it won’t prevent interest being charged.
As an accountant, Nigel Moysey specialises within offering taxation and financial advice to the agricultural sector