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.”
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Martin Wilmott acts as lead engagement partner for a wide range of corporate and non-corporate clients in the Doncaster office, especially in the Legal and professional, agricultural, transport, property and construction, manufacturing, healthcare and hospitality sectors. For more information or advice on anything covered in this article please contact Martin on [email protected] or 01302 367 262.