Farmers must act to recover tax during difficult times, says Old Mill
Arable and dairy farmers are facing a difficult year, but could recover £1000s in tax, according to rural accountant Old Mill.
“With cereal prices in freefall and many other commodities following suite, a lot of farmers are potentially operating at a significant loss this year,” says Partner Mike Butler. “Even though they benefited from improved profits last year, many will be worried about the financial outlook over the next 12 to 18 months.”
Poor summer weather has compounded lower commodity prices, with many farmers suffering from low cereal yields and unwelcome drying costs, particularly in the West Country, he adds. “The strengthening Pound and firming oil prices are also adding to the uncertain economic outlook.”
Farmers must always be able to react quickly to volatile market conditions – and part of that must be in the management of their tax affairs, says Mr Butler. “Over the past couple of years we have concentrated on minimising tax on what were, for many, relatively strong profits. But now farmers’ focus must be on recovering tax and maximising cash flow during this difficult trading period.”
Historically, farmers could only recover tax paid in the immediate previous year – but recent concessions mean they can recover tax paid up to three years prior to a loss-making year, he adds. In addition, they can make use of the usual tools to mitigate tax, such as farmers’ averaging; 100% tax relief on equipment expenditure up to £50,000 per annum; and pensions relief.
“It is also important to operate the correct year end. It is possible to accelerate the reporting of more difficult trading conditions, to reduce the delay until tax refunds can be obtained.” Other options include changing the timing of commodity sales, and reducing tax payments on account.
“Old Mill is already seeing tax savings of more than £30,000 per farming business – or typically £7000- £8000 per partner,” says Mr Butler. “Farm businesses, particularly those which have paid significant amounts of tax in the previous three years, should be looking at their options now. It may be possible to recover some of that tax, reduce future payments on account, and minimise the overall tax burden by careful planning during the remainder of the financial year.
“Farmers and rural businesses should also seek to maximise support in the form of tax credits, which can be a vital lifeline for families during low income periods. With cash flows becoming tight, and many businesses likely to be operating at a loss, it is imperative that farmers plan their fiscal affairs in the most beneficial way possible.”