7 March 2001
Full Budget Analysis

IN ASSOCIATION WITH

Grant Thornton

TAX RATES AND ALLOWANCES

Tax Rates and Bands 2000/01 taxable income (£) 2001/02
Lower rate (10%) 0 – 1520 0 1880
Basic rate (22%) 1521 -28,400 1881 – 29,400
Higher Rate (40%) over 28,400 over 29,400
Allowances
Personal Allowance 4385 4535
Married Couple Allowance*
*Over 65 only
5185 5365
Childrens tax credit (CTC) 5200 at 10%
Newborn CTC for year one 5200 at 10%

KEY POINTS FOR FARMERS POSITIVE

  • No pesticides tax.
  • Scope of capital gains business taper relief extended to include certain trusts trading in partnership.
  • First year allowance of 100% on designated energy saving plant and machinery.
  • Modest rise in inheritance tax threshold to 242,000.
  • Reduction in fuel duties.
  • Abolition of tractor VED.
  • Extension of small car threshold for VED.
  • Childrens tax credit increased and extended from original proposals.

KEY POINTS FOR FARMERS NEGATIVE

  • No new specific aid package.
  • Climate change levy.
  • Increase in landfill tax.
  • No increase in corporation tax thresholds.

INTRODUCTION
The impression left by the 2001 Budget speech is that there will be no significant help to the farming community but certain “social welfare” proposals will help in these difficult times, says Carlton Collister, senior tax manager with Grant Thornton.

However, although not mentioned in the Chancellors speech, news that there is to be no pesticide tax is most welcome. Otherwise, this years Budget sees a consolidation and enactment of previous proposals, rather than the introduction of substantial changes for farmers, he comments.

“Some further proposed simplification to accounts production and VAT are to be welcomed. However, the introduction of the Climate Change Levy in the current year and an aggregates tax in 2002 are indicative of the increase in indirect tax on business,” warns Carlton.

TAX RATES AND ALLOWANCES
The changes in income tax rates and thresholds have increased broadly in line with inflation.

Other changes effective from April 2001 include the introduction of the childrens tax credit with the Chancellor increasing the proposed rate and announcing a further increase for the year of a new childs birth.

There are no changes in either the corporation tax thresholds or rates as a result of this Budget.

TAX CREDITS
With low agricultural incomes, the increase in the working families tax credit by 5 per week from June 2001 may be of use to some farmers. Unfortunately, it only applies to those with less than 8,000 capital outside the core farming business. With so many farmers diversifying into letting surplus property, this is likely to be of limited benefit.

CAPITAL GAINS TAX
There are no significant changes to capital gains tax announced this year, unlike in previous years, though the extension of business taper relief to certain trusts trading in partnership will be of great help to some families.

The phasing out of retirement relief continues, culminating in its abolition in April 2003. It may still be worthwhile triggering gains now to take advantage of the relief. This should be weighed against the benefits of escalating taper relief.

As farmers move towards the end of the minimum period to qualify for 75% taper relief, the prospect of retaining proceeds net of just 10% tax may remove the necessity to re-invest for roll-over purposes as a means of managing the tax cost.

CAPITAL ALLOWANCES
The Chancellor has retained the first year allowance of 40% on investments in plant and machinery by small and medium sized businesses.

Helping intensive farming activities, more details regarding the introduction of a 100% first year allowance on expenditure on designated energy-saving plant and machinery were announced. Details of the designated technology by classes are available but we await the issue of the Energy Technology List to enable claims to be made.

VAT
The proposed simplification of the VAT regime will have little effect on most farmers, who tend to make monthly repayment claims.

The small increase in the registration threshold to 54,000 and the proposed introduction of a flat rate scheme for businesses with a turnover up to 100,000 is to be welcomed for those businesses where net VAT is payable, rather than recoverable.

There may also be an opportunity to convert residential properties at a reduced VAT cost of 5%. However restrictions apply and it will be necessary to examine the detail to discover whether any particular conversion qualifies.

INHERITANCE TAX
There was a small increase in the nil rate band of inheritance tax, up by 8,000 to 242,000. However, potentially exempt transfers, where the donor must survive for seven years to benefit from the allowance, are retained.

Business and agricultural property reliefs stay the same. For most assets, these remain at 100%, but for businesses with partnership structures, land owned personally is only entitled to 50% business property relief.

REDUCED RED TAPE ON ACCOUNTS FOR TAX PURPOSES
The Chancellors review of the tax system continues and there is to be consultation to bring the taxable profit of small businesses more in line with the profit figure presented in the accounts. This will be a welcome simplification of the current regime, but will not be introduced until next year at the earliest. It will be interesting to see how the Inland Revenue protect against depreciation and losses being anticipated earlier than they would currently accept.

REDUCING TRANSPORT COSTS
Having been faced with political revolt after the fuel crisis last autumn, the Chancellor announced many measures to reduce transport costs in the Autumn statement. These have been confirmed in the Budget and include:

  • Abolition of the 40 VED on tractors, backdated to 1 March 2001.
  • A reduction in lorry VED, which should reduce transport costs.
  • A reduction in the duty on ultra-low sulphur petrol by 2p per litre and 3p per litre on ultra-low sulphur diesel, as expected.

LIMITED LIABILITY PARTNERSHIPS
Limited Liability Partnerships (LLP) will be possible from 6 April 2001, and may be an appropriate trading vehicle for a farmer where a joint venture is appropriate. For example, this may be relevant for a farmer who wants to diversify by letting surplus buildings for use by a separate business, but wishes to retain the capital gains tax and inheritance tax advantages of holding a trading asset rather than an investment asset. The taxation of an LLP is broadly the same as for a partnership, although anti-avoidance legislation has been introduced where the LLP will be used for investment or property investment purposes.

EMPLOYMENT COSTS
For employers, the increase in the National Minimum Wage, maternity pay and parental leave will increase employment costs.

STAMP DUTY
No substantial changes were announced in this years Budget.

IN ASSOCIATION WITH

Grant Thornton

Grant Thornton is a leading firm of accountants and financial advisers, with a specialist team dedicated to the agricultural industry. It aims to help farm owners and managers maximise their profits, operating via a network of 43 offices across the country. Tel: 01993 894900