Tax planning for farming and rural businesses

Many of our farming clients are now asking us to review their taxable profits.  Getting your books in before the year end and having a discussion about crops and livestock movements that are expected in the run up to the year end can produce accurate information that we can use to your advantage.
Some of the ways we help our farming and rural business clients reduce their taxable income or, at least, mitigate tax payments on account are set out below.


Capital expenditure on plant and machinery
The Annual investment allowance (AIA) is currently generous with qualifying expenditure attracting 100 percent relief.  We know that the current AIA levels run through to 31 December 2015 at £500,000 per year, and again, you should be planning ahead any capital expenditure in particular for the next 12 months or so. Just remember that where it is acquired on hire purchase, the asset needs to be “in use” at the year end for all of the expenditure to qualify.


Accelerating tax allowable expenditure
If there are some barn repairs, farmyard works or work required on farm tracks, can this be accelerated to before the year end?  Depending upon your year end, there may be some practical difficulties, but genuine repairs will be entitled to 100 percent relief in the year incurred.


Pension contributions
As long as there is taxable earned income to support the contributions, individuals can pay up to £40,000 gross (£32,000 net) per annum (or even more if there is unused relief from previous years) which may give rise to higher rate tax relief through the self assessment return.  The proposed changes to pensions in 2015 mean that, as well as providing a future income stream away from the farm to aid succession, there will be the opportunity to create an inheritance tax exempt fund to move down to the next generation.


Timing of crop/livestock sales can be important
Where crops or livestock are unsold at the year end they will be shown in the accounts at “cost of production” (or deemed cost if relying on BEN 19) rather than market value.  There is, therefore, an element of unrealised profit (hopefully!) included in crops and livestock in the valuation and therefore the timing of the sale of crops into the next accounting period will defer the point at which that profit is recognised.


Annual allowances
Now is also a good time to consider utilising annual allowances for capital gains tax, inheritance tax and ISAs.  Our Essential Year End Tax Planning guide provides more detail on these matters.


Did you find this blog useful?  Why not take a look at our other recent farming and rural business related blogs.


Succession planning for farming families


Fluctuations in profits