Beware the tax man cometh
Farmers wanting to buy plant and machinery should do so in this tax year, or they could face a hefty tax burden on large purchases, according to accountant Old Mill Rural Services.
In recent years farmers have been able to write off 50% of the cost of machinery and plant in the first year, with a 25% allowance on the residue of equipment in succeeding years.
But from April 2008 the 50% allowance is likely be replaced with a 100% write off for qualifying plant and equipment purchases, up to £50,000. While this may sound attractive, any farmer spending more than £50,000 in any one year will not be able to claim any first year allowance whatsoever.
“What is worse, Gordon Brown has proposed to reduce the residual allowance from the 25% currently enjoyed to 20%,” says partner Mike Butler. “Furthermore, it is identified that fixed plant and equipment within buildings may not qualify for the normal capital allowances but will only attract a much lower 10% rate.
“Many farmers rely upon the claim for tax relief on plant and machinery to mitigate their tax liabilities,” he adds. “With increased mechanisation being used to compensate for lower labour levels, the recent run of first year allowances have made buying plant and machinery a relatively tax efficient option. But with the first year allowance now only available for the current year, this may be your last chance to enjoy those relatively useful tax breaks before they are taken away.”
At the same time, while the government is easing the Corporation Tax burden on large companies from 30% to 28%, it is racking it up from 19% to 22% for smaller businesses over the next two years.
This means that any companies with profits of up to £300,000 will not only be able to claim fewer tax allowance on purchases of plant and machinery, they will also be paying a higher rate of tax on their profits.
“While it may be cynical to suggest that only the largest businesses based in the City have the Chancellor’s ear, it seems clear that farmers and agricultural contractors are seeing their tax breaks being steadily eroded,” says Mr Butler. “And this all comes at a time when agricultural businesses desperately need to invest to prepare for a future with lower, decoupled, support payments.”
Ends.