Reducing future tax payments

HMRC have been busy sending out tax statements and demands so that taxpayers have them before the end of January when the next instalment of personal tax payments becomes due.

If you have received such a statement hopefully it did not come as a surprise, and the amount due has been flagged up and discussed between you and your tax adviser. But have you talked to your adviser about the amount payable and if that can be reduced in the context of the financial results you expect your farming business to achieve for 2019/20?

The 2018 harvest produced good financial results for many farming businesses and for most it is those results on which 2018/19 tax payments are due, with any balancing payment to be made by January 31 2020.

Cereals prices were strong after the long dry summer of 2018 and many farm businesses were able to capture good output prices after harvest.

This coincided with strong sales values for fruit growers during 2018, while many vegetable and potato growers were also able to benefit from higher than average prices on the back of last year’s harvest.

So, an arable farming business, with say a December 31 2018 or March 31 2019 year end may well have presented good financial results for that particular financial year.

Also due to HMRC by January 31 2020 is a first instalment of tax for the 2019/20 tax year, which for many farm businesses will reflect the financial year which covers the 2019 harvest year. How did it compare to 2018?

As we know, farming is notoriously volatile and those same businesses which showed good financial results for 2018/19 are unlikely to be able to get close to matching those financial results for the financial year which covers the 2019 harvest.

Commodity prices across the board are weaker, with supply/demand factors showing a different balance to 2018/19 and currency changes impacting too. So, farm financial accounts for 2019/20 will, in many cases, show a much lower profit (or worse) than they did in 2018/19.

If that is the case, what can you do?

First, you need to speak to your tax adviser.

What are the factors that will impact on the amount on which you are taxed for 2019/20 and how have they changed from 2018/19?

Can you measure and quantify the financial performance of your business for 2019/20 yet, even if the financial year end is only just or not yet completed? Did you have significant capital expenditure in the financial year?

Ultimately, all these factors need to be considered and assessed to ascertain if the taxable profit will be higher or lower than it was in 2018/19.

If you are unable to reasonably conclude that your taxable income will be lower for 2019/20, it will probably be best not to guess.

If, however, you can conclude that your taxable income will be lower then it may be possible to claim to reduce the tax payment on account which is payable at the end of January 2020.

At the very least this could provide a valuable cash flow benefit, cash which can be utilised in the running of your business into the spring and early summer months.

If you have not had this conversation with your adviser now is the time to do so, before you pay more than you need to at the end of January.

“What are the factors that will impact on the amount on which you are taxed for 2019-20?