19% tax rate still ‘favourable’

Despite the Chancellor’s move in his pre-Budget report to tax all small company profits up to 300,000 at 19% from next April, this is still a favourable rate for profitable businesses, says Iain McVicar of Taunton-based accountant Albert Goodman.

The new regime does away with the tax free 10,000 band and the 23.75% rate on profits between 10,000 and 50,000 but still compares well with the top rate of 40% tax plus 1% National Insurance, which is the alternative for sole traders and partners.

Limited companies are still worth considering for profitable dairy companies and in particular where they are buying milk quota, although the drop in the price of quota has also reduced this benefit.

A company structure allows the cost of milk quota to be set off (over the expected life of the asset) as a business expense to reduce annual tax liability, says Mr McVicar.

This option is not available to sole traders and partnerships, where milk quota is treated as a capital asset.

In some circumstances it is useful to use a company structure for just part of the farming business, for example a dairy, but a company structure should not be chosen for tax purposes alone, he warns.