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Following the announcement of changes in last year’s March Budget, the government has now confirmed the details behind the new farmers’ averaging rules.

In summary, farmers will have the option of averaging losses for tax over a two year or a five year period.

In an article we published after the initial announcement last year we mentioned that the government was set to hold a consultation to confirm the details of the potential changes to farmers’ averaging. Following the publication of details from that ongoing consultation the government has confirmed the changes, effective April 2016.

New farmers’ averaging rules

The government has now confirmed that the current two year averaging period will not be replaced (as was speculated) but it will be added to. From 6 April 2016 farmers will now have the option to elect for either a two year or a five year averaging period.

This extension to the current farmers’ averaging rules (from April 2016) – rather than a replacement – will bring even greater flexibility to farmers and will help them better manage potential fluctuations in income.

Greater flexibility brings some good news for farmers

Richard Marsh, Partner at Hawsons, welcomed the announcement, commenting: “Farming profits are often affected by external matters outside of the business owner’s control; erratic weather conditions, disease and price movements are just some of the factors that can make farmers’ profitability fluctuate from year to year. The ability for farmers to average profits over consecutive years is an important provision and this confirmation of an extension to those rules is certainty welcome news for the farming community.”

“The idea of a longer averaging period will hopefully give farmers that additional flexibility and security they need during those particularly volatile years. As I said when the initial proposals were announced last year, the new rules are a real positive for farmers and will help reduce excessive tax bills that may arise from fluctuations, especially as a good year can often be followed by a poor one.”

“The decision to retain the two year averaging option as well as introduce a new five year averaging option is the right choice. It is likely that, although the majority of farmers will use the extended five year averaging option, some business will still prefer the two year averaging system.”

More from our agriculture experts

You can find all of our latest agriculture sector news and newsletters here.

If you are looking for advice in a particular area, please get in touch with your usual Hawsons contact.

Alternatively, we offer all new clients a free initial meeting to have a discussion about their own personal circumstances – find out more or book your free initial meeting here. We have offices in Sheffield, Doncaster and Northampton.

Richard Marsh is managing partner in the Doncaster office and joined Hawsons after working for two major international accounting firms. He has over 30 years’ experience in dealing with the needs of businesses of all sizes and acts for a wide range of commercial clients. For more details and advice, please contact Richard on [email protected] or 01302 367 262.

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