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Date of publication: September 2012
If you are planning to purchase plant and machinery in the near future there are planning opportunities available to ensure reliefs are utilised efficiently.
100% relief for £25,000 capital expenditure on plant and machinery (subject to certain exclusions)
Therefore up to £100,000 worth of capital expenditure made prior to April 2011 will attract 100% relief and the same again for purchases made before April 2012.
Spread your purchases wisely!
These are available at 18%.
Many farmers are looking to convert farm building as an extra source of income.
If you do, make sure you get a full break down of all costs spent as reliefs are available for integral features, but not for buildings themselves.
Integral features are:
A writing down allowance of 8% is available on these items.
The AIA is available against integral features also.
There is 100% relief available for plant and machinery purchased that is considered to be energy saving.
Therefore make considerations when purchasing any equipment as perhaps you can claim back the full cost if you are kind to the environment as well!
For a full list of items that qualify go to www.eca.gov.uk/etl/criteria
There are restricted tax reliefs for the purchase of cars, however vans are considered to be plant and machinery and therefore attract all the reliefs mentioned previously.
The following vehicles actually qualify as vans and therefore may be worth considering for tax purposes: Land Rover Defender and Mitsubishi Warrior.
All UK farming is treated as the carrying on of a trade and due to the nature of this trade losses can occur for which there are various loss reliefs available.
However where losses are sustained in farming activities of an essentially uncommercial nature, i.e. hobby farming, reliefs may fall to be restricted essentially preventing offset against non-farming income.
The five year rule restricts relief where tax adjusted losses before capital allowances were incurred in each of the five previous years of assessment.
Some farmers take on large numbers of workers at harvest time. Some of these casuals turn up for work without prior agreement or receive piece work payments.
In brief, employers should keep records of the names, addresses and amounts paid to employees concerned, so that a return can be made when required.
It is usual to calculate VAT on a quarterly accruals basis, but if you are in a position where there are bad debts or cashflow is tight the cash accounting scheme may appeal – in order to be eligible to use these your taxable turnover must be below £1.35m.
The cash accounting scheme means that you only account for VAT actually received and paid as opposed to invoiced. This means that if you suffer a bad debt you get immediate relief in terms of the VAT element.
If you are regularly in a repayment position ensure you have applied for monthly returns to enable you to receive your VAT refunds quicker.
Modern farming trends are leaning towards the use of farm building for non farming activities e.g. renting. This can affect the property's entitlement to APR and BPR.
For example, a cottage or farmhouse that is occupied by someone not employed in farming won't qualify as agricultural property unless the occupier is:
This relief was essentially set up to assist the passing down of farming property through the generations.
APR is available on the agricultural value of agricultural property which is transferred. The agricultural property can be owner-occupied or let. Relief is only due if the transferor has owned the property and it has been occupied for agricultural purposes for a minimum period.
The relief operates by reducing the value transferred by a transfer of qualifying agricultural property.
Relief is available for transfers in life, on death and when agricultural property is chargeable as settled property. However if a partially exempt transfer becomes chargeable APR conditions still have to be met at death for retention of the relief.
Business Property relief (BPR)
BPR is similar to APR but is not restricted to agricultural property.
Again, the value of the transfer of relevant business property is reduced by BPR in lifetime and if a gift becomes chargeable this relief is retained if the conditions are still met in death.
If you plan on exiting your farming business through a sale, then entrepreneurs' relief will be available, subject to certain conditions. This relief will reduce the gain either on the sale of the shares in your farming company or on assets disposed of as part of the sale of the farming business.
Roll over relief is a further capital gains tax relief available when business assets are sold.
If you've reinvested all of the proceeds from the sale or disposal in new business assets, you'll be able to 'roll-over' (or postpone) all of the gain and there'll be no tax to pay at that time.
You may still be able to postpone part of the gain if you only reinvested part of the proceeds – or if your old asset has only partly been used for your business, e.g. you rented out a property for a time and then started using it in your trade.
This guide does not contain a full statement of the law and it does not constitute legal advice. Please seek legal advice if you have any questions about the information set out above.