Farmers must get chequebooks out to beat huge tax relief cut
WHEN uncertainty abounds, human instinct is to play it safe, stick to what is known and act with increased caution.
For farmers, weathering the economic storm, the obvious response to economic turbulence would be to squash any extraneous expenses – and push big capital expenditure projects into the long grass. It is, therefore, inevitable that, come April, there will be an abundance of rural businesses forced to plan and make large investments – only to be left reeling as to why they didn’t splash the cash earlier.
That’s because a hefty £800,000 is to be axed from an important tax allowance in April, 2023. Making the best use of the current Annual Investment Allowance (AIA) will be absolutely vital for many farmers’ long term profitability. AIA provides farmers with 100% tax relief on agricultural equipment expenditure – allowing farming businesses to reduce taxable profits by the full amount of their annual capital investment.
The upper limit farming businesses are able to claim has been set at £1m for the last four years but it will soon revert to its 2018 level of just £200,000, starting from the end of March next year.
Whether a business is looking to purchase new or second-hand plant machinery, or business equipment, there are a host of farms that will be committed to spending that have not yet put pen to paper. I’d urge them to do so now.
That’s because, as daunting as the AIA deadline sounds, being proactive now can present a massive opportunity for farmers in need of equipment in order to secure financial stability for the long term.
While there can be money saved on the purchase of tractors, combine harvesters and any other big-budget machinery, we’re urging our agricultural clients to bring forward their purchasing plans in order to make the most of the financial opportunity while it lasts. It’s not just plant and machinery that can be off-set – vans, lorries, computer and office equipment used for businesses are also purchases that can apply and should be considered now.
The cost of demolishing plant machinery as well as alterations to a building to install plant and machinery are also costs that can be forecasted before it’s too late.
Making the most of the AIA window should be high on the priority list of farmers and agri businesses looking to bolster their arsenal because being slow to the punch could impact the allowances available to them.
Seeking financial and taxation advice should also be key for those in the farming industry going forward in order to maximise the amount available by realising each farm’s individual circumstances and potential.
We are constantly telling the rural sector about what they can do to combat the decade of upcoming industry change. With soaring material costs and labour shortages due to Brexit and the war in Ukraine, it’s no secret that saving money now could be vital in the long term.
And, due to the everchanging impacts and hurdles faced by the industry, machinery and plant delivery times are lengthier than ever. Be aware that, the majority of large purchases only qualify for tax relief once the item has arrived at the delivery address, meaning if farmers don’t make their purchases soon, delivery delays could mean they miss out on the valuable tax relief before they know it.
At Douglas Home and Co, yet another hurdle we’re flagging to rural businesses to manoeuvre through AIA complication is the timing of their year ends. It could be particularly problematic for businesses whose accountancy period straddles the March changeover date because it could reduce the amount of AIA they can claim for the year.
Although parting with cash earlier than expected can be unsettling, planning ahead can be extremely straight-forward for farmers and rural businesses when buying big-ticket machinery and assets.
This is a challenge that can be tackled head on and doing the work now will ensure that hindsight doesn’t force rural businesses and farmers across the country to regret the money they didn’t spend – in the interests of thrift.
* Victoria Ivinson is a director at Douglas Home and Co and specialises in agricultural accountancy. Victoria heads up the agricultural team which has served more than 1000 rural businesses. She is an expert in all areas of tax including IHT, CGT, R and D and capital allowances. The firm was founded and remains headquartered in the Scottish Borders – it has 70 staff and last year reported a 4% rise in turnover to £4m.