Make the most of your profits
We specialise in agricultural and rural affairs supporting a range of farming, horticultural and rural businesses, working closely with you to make the most of the tax planning opportunities and reducing tax liabilities .
We apply a range of tax saving procedures and by careful planning, ensure that you pay the minimum amount of tax. Some examples where savings can be made are outlined below.
One Hertfordshire based two partner farming business was able to save over £3,500 in tax by averaging 2010/11 profits with 2009/10 profits.
With large fluctuations not only in selling prices, but also in the cost of production, farming profits can vary widely from year to year. However, averaging enables farmers to lessen the effect of high tax rates on a successful year when preceded or followed by a bad year. This valuable relief should not be forgotten.
So how does this relief work?
The taxable profits of two consecutive years can be averaged if the profit of one year is less than 70% of the profit of the other year.
The relief is available to sole traders and partnerships in the trade of farming and market gardening, but not available to limited or unlimited companies. Averaging claims are not made by the partnership; the individual partners make separate claims on their profit shares, if they wish.
A claim is of most advantage when by averaging two years, the relief will allow personal allowances to be utilised which would otherwise be wasted, or if the relief results in the highest profit no longer incurring tax at the 40% rate.
If full averaging is not available then marginal relief is available, if the profits of one year are more than 70% but less than 75% of the other.
Hacker Young’s standard procedures mean that averaging is always considered on farming clients and it is an invaluable part of income tax planning.
If your accountant is not discussing averaging with you, please contact us to find out more.
The Stock Depreciation Adjustment
Following the March 2007 House of Lords decision on the treatment of depreciation in two cases heard together (the case of Small v Mars UK Ltd and William Grant & Sons v CIR) it is possible to get an adjustment to tax computations for depreciation carried in stock.
The Lords held that where depreciation is both included in the closing stock valuation and then added back in the taxation computations prepared by accountants, there has been a potential double “add-back”. To avoid this, the “add-back” should only be made in the year when the stock is sold rather than the year in which it is created. This ruling applies to all businesses irrespective of size, but it will have particular impact on farmers. The adjustment is not just restricted to arable crops and it can be applied to livestock.
The adjustment is mandatory having been confirmed by HMRC and applies to 2007/08 tax years onwards. Accountants should make a computational adjustment reflecting the element of depreciation in the year end stock and the calculation should be repeated in each subsequent year.
The adjustment has an impact in the first year that it is processed and Hacker Young have found that there can be a significant reduction in a farmer’s taxable profits, which may result in a sizeable tax saving.
One North Hertfordshire farmer was able to reduce his farming profits by £26,744, which, at the higher tax rate of 40%, plus the 1% in respect of the additional national insurance contributions, saved him £10,965.
If you would like to find out the likely effect of this tax adjustment on your taxable profits and how much tax you could save, please contact us on 01763 247321 or at firstname.lastname@example.org