One-off chance for farmers and food businesses to slash tax, says Old Mill
Farmers and food processors who hold large stocks at the end of the financial year could slash their tax liability for this year, according to rural specialists Old Mill Accountants and Financial Advisers.
Following a pair of court cases involving Mars and William Grant & Sons Distillers, HM Revenue & Customs has changed its stance over the treatment of depreciation for tax purposes within closing stock valuations. Businesses are required to include depreciation within a closing stock valuation such that the cost of production is accurately reflected. Although depreciation is not an allowable expense, HM Revenue & Customs would not allow an adjustment to reflect this. However there is now an opportunity to do so, and reduce taxable profits accordingly, says rural tax specialist Catherine Vickery.
“Most farmers and food businesses will be aware that lowering stock values reduces profits, and therefore cuts tax liabilities. Many have a significant amount of equipment, which is depreciating each year, and carry considerable stock levels. Offsetting a percentage of this depreciation against stock values can therefore have a massive influence on business profitability, particularly in the first year that the adjustment is made.”
For example, a typical arable farm carrying over a quarter of the year’s grain, can now offset 25% of its depreciation against the value of those stocks as part of its cost of production. That could cut the value of the stock by, say £25,000, which, at a marginal tax rate of 30%, would equate to a tax reduction of about £7,500, says Mrs Vickery.
“Businesses that carry larger stocks will be able to claim an even greater depreciation element. Some will be able to save vast amounts of tax – big farmhouse cheese producers, for example, could be looking at adjustments measuring in £100,000’s.”
All businesses should consider their stock valuation and depreciation calculation, with the help of their advisers, she adds. “HMRC is actively encouraging people to deal with this matter in the current financial year – those who have already finalised their position should look at it again with a view to obtaining a tax refund.
“This is a superb opportunity for anyone who relies on equipment as part of their business and carries stock or crops over at the end of their accounting year to slash their tax liability. It would be madness not to do so.”
For more information contact Catherine Vickery at Old Mill on 01935 426181.