Tax opportunities for UK farmers and agricultural businesses

Tax opportunities for UK farmers and agricultural businesses

Are there tax opportunities for UK farmers available in 2022?

Annual Investment Allowance, Agricultural Property Relief, and farmers’ averaging are generous tax reliefs for UK farmers and owners of agricultural businesses. However, each has some detailed rules that you need to be aware of – particularly as UK farming brings unique tax reliefs and rules.

 

Annual Investment Allowance

The Annual Investment Allowance (AIA) was increased from £200,000 to £1 million on 1st January 2019. It has been confirmed by the Chancellor that this will stay in place until at least 31 March 2023. The AIA provides a 100% deduction for the cost of plant and machinery (excluding cars) purchased by a business, up to an annual limit, and is available to most businesses.

On 1 April 2021, the government introduced the super-deduction which is a 130% first-year capital allowance for qualifying plant and machinery assets. There is also a less generous 50% first-year allowance for assets qualifying for the special rate pool. The super-deduction will allow companies to reduce their tax bill by up to 25p for every £1 they invest. However, it is important to note that the super deduction is not available to unincorporated businesses.

Now AIA has increased to £1 million this is a very generous figure and is one of the best tax opportunities for UK farmers. As the cost of agricultural machinery and equipment is very high, maximising the opportunities of the AIA could be essential for farmers. If you are considering purchasing any farming equipment it is important to note that the £1 million allowance could be significantly reduced in March 2023.

 

Caution

You will need to be very careful of timings in order to maximise your AIA. You also need to decide whether or not now is the right time to use the AIA to reduce your tax bills. Using the AIA to reduce tax bills in the agriculture sector or keeping cash reserves is a topic we have covered before.

Whether or not now is the right time for farmers to use AIA to reduce their tax bills depends on specific circumstances. Given the uncertainty in the sector and the ongoing fluctuations of profits – both heavily influenced by supermarket price wars amongst other things – now might be the time to keep cash reserves rather than spend. When cash flow is tight and you have no spare funds to purchase machinery, spending to theoretically reduce your tax bills through AIA may not be the right option for your business.

 

Farmers’ averaging relief

Farmers’ averaging is a unique tax rule, introduced to limit fluctuations in farmers’ tax bills – which can happen for any number of reasons, such as the weather or a poor harvest.

Provided that certain conditions are met farmers can claim this special relief where they can average their profits from farming or market gardening over 2 years or 5 years.

 

Agricultural Property Relief

Agricultural Property Relief (APR) essentially provides 100% relief from inheritance tax on the agricultural value of land and property where certain conditions are met. Inheritance Tax (IHT) is becoming increasingly complex and potentially expensive for farmers and their families. APR could therefore provide an invaluable relief.

 

The Farmhouse

It should be noted that the agricultural value of farmhouses can qualify for APR but stringent conditions must be met. It is likely that the open market value of a farmhouse is more than the agricultural value. Therefore, even if APR is available there could be some IHT exposure on a portion of the value. The main residence nil rate band is capable of being applied to farmhouses where the farmhouse is passed to a direct descendant.

This may therefore provide some further IHT relief for farmers.

The current allowance for the residence nil rate band for Inheritance Tax is £175,000.

This extra allowance is transferable exactly as the current nil rate band is now, and for a surviving spouse/civil partner who has been widowed before 6 April 2017, there is a transferable allowance of £100,000 if the survivor dies on or after that date.

One important point to note is that the main residence nil rate band will be reduced by £1 for every £2 that the value of an estate before reliefs exceeds £2 million. Since the value of estates for many farmers will exceed this threshold it is vital that they engage in IHT planning with a view to reducing the value of their estates.

This may then enable them to benefit from the main residence nil rate band and in turn reduce their IHT exposure.

 

Caution

APR and the new additional main residence band are extremely generous tax reliefs and, as such requires you to meet certain and complex qualifying conditions. Another key thing to remember is that APR is an all-or-nothing relief – if you don’t meet all of the detailed conditions, then you will not qualify. Planning is essential, and so is making a will that is tax efficient.

We advise farmers to regularly review their activities to ensure their business is structured to take full advantage of APR and maximise other reliefs available. For more information, we recommend you read HMRC’s rules and guidance on APR here.

 

How can we help?

At Hawsons our experienced tax advisers can help and identify which tax reliefs your agricultural business may be eligible for. We are very experienced at providing a full range of accounting, tax, and financial planning services for agriculture businesses and have extensive knowledge of the sector.

If you believe your business may be eligible for any of these tax reliefs it is vitally important to seek expert advice. The rules and conditions of these tax rules are extremely complex and our tax experts can check your eligibility and help you make the most of your claim as well as identify any further tax reliefs your business may benefit from.

Contact us today!

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.

Free initial meeting

Aaron Hemmington

Tax Partner, Northampton

01604 645 600

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With the festive period now approaching, we are often asked by employers about the tax treatment of providing a staff Christmas party or giving gifts to employees. Here is a quick reminder of the rules for the tax year 2021/22.

 

STAFF PARTIES

 

What is exempt?

There is a tax exemption for employee entertaining if the event is all of the following:

  • an annual party or social function, such as a Christmas party or summer barbecue
  • it is open to all employees (or all employees based at one location)
  • the cost does not exceed £150 per head (inclusive of VAT)

HMRC have confirmed that Virtual Christmas Parties are eligible for the annual function exemption.

 

Calculating the cost

The total cost of the party is the whole cost of the event, from the start to the end.  It includes food, drink, entertainment, taxis home, overnight accommodation, etc.

The limit of £150 per head applies to all those attending the function, not just employees.  So, if employees are allowed to bring guests, the total cost should be divided by the total number of employees and guests.

 

Two or more functions

If there are multiple annual events, they will still be exempt as long at the combined cost is no more than £150 per head.

If you’ve already used up the £150 exemption on an event, you’ll have to report and pay tax on the full costs of any additional events, even if they cost less than £150 per head on their own.

 

Reporting obligations

A taxable benefit in kind will arise if either the limit is exceeded, or the function is not open to all staff or it is not an annual function.

Please be aware that the £150 per head limit is an exemption not an allowance – go just a penny over the £150 and the full cost becomes taxable.

The benefit must be reported on each employee’s form P11D.  The employee will pay income tax on the benefit, and the employer will be charged Class 1A national insurance.

Alternatively, the employer can apply to pay the grossed-up tax through a PAYE Settlement Agreement (PSA).

 

Are costs tax-deductible?

Client entertaining is generally not an allowable expense for corporation tax purposes.  However, the cost of employee entertaining is an allowable expense, and therefore the cost of the staff Christmas party can be deducted.

 

VAT

Input tax on employee entertaining is generally recoverable.  However, please note that the definition of employees for VAT purposes does not include partners/spouses of staff or former employees.  Therefore, if guests are invited it will be necessary to apportion the relevant costs appropriately.

Please also note that if an event is provided only for directors, partners, or sole proprietors, HMRC will not accept that input tax has been incurred for business purposes.

 

GIFTS TO EMPLOYEES

 

Cash bonuses & vouchers

Christmas presents paid in cash to staff will be taxable as earnings in the normal way (subject to tax and national insurance). The same tax treatment also applies to vouchers exchangeable for cash, with the employee taxed on the full value of the voucher.

Vouchers exchangeable for goods and services only (non-cash vouchers) are also taxable and must be reported on the employee’s form P11D.  Class 1 national insurance will normally need to be deducted through the payroll.

Make sure you tell your accountant or the person who prepares the payroll, so they can report the correct figures to HMRC.

 

Seasonal gifts

The employer may wish to give employees a seasonal present, such as a turkey, a bottle of wine, or a box of chocolates.  Provided the cost of the gift is ‘trivial’ – typically less than £50 ahead – the gift will usually not be taxable.

If the gift exceeds this value, it will be taxable and it will need to be reported to HMRC on either a form P11D or through a PSA.

 

Third parties

Employees may receive gifts from third parties as a result of their employment.  As long as the gift does not exceed £250 in cost, it should not be taxable for the employee.

 

How we can help

At Hawsons we have a dedicated team of tax specialists at our offices in Sheffield, Doncaster, and Northampton. Our experts provide proactive, well rounded, technically robust tax advice to businesses and individuals. If you are interested in what tax services Hawsons can offer you please visit our tax services webpage.

If you have any questions on how to treat your festive finances or would like more detailed advice, please do get in touch with us here at Hawsons.

We hope you enjoy the festive period!

More from our tax experts

You can find all of our latest tax articles and tax resources 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.

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‘Requirement to Correct (RTC)’ legislation requires UK taxpayers to ensure that all foreign income and assets, where there may be UK tax to pay, have been correctly declared to HMRC by 30 September 2018.

HMRC will impose very harsh penalties for those who fail to comply with the RTC.  So it is vital that anyone who has offshore interests urgently reviews their tax affairs to ensure they are fully compliant.

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How Hawsons can help

Hawsons can assist with performing health checks, preparing outstanding returns, advising on relevant liabilities and assisting with disclosures to HMRC.  For more information please get in touch with your usual Hawsons contact.

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0114 266 7141
UK set for weakest growth since 2009

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The lack of progress on the UK’s trade and investment negotiations with the EU has led ICAEW to slash its 2018 GDP growth forecast for the UK from 1.7% to 1.3%

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Job creation is likely to cool throughout 2018 with total employment growth down by 0.1% to 0.9%.

ICAEW chief executive Michael Izza says that the situation will continue while progress on Brexit remains stalled.

“The US, Australia, Germany and even Greece are expecting growth above 2% and there is a danger that the UK’s sluggish growth will become acceptable at a time when other countries are gathering pace,” he warns.

 

On the bright side, evidence from ICAEW’s quarterly Business Confidence Monitor shows that optimism among exporting businesses is rising faster than among non-exporters.

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Izza urges the government to “make progress with the EU in helping to pave UK business success once Brexit takes place”.

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