Business clinic: Farming year-end tax advice

Farmers Weekly’s business expert Mike Butler offers year-end tax advice.

Q: I am approaching my year-end, what should I be considering?

A: Consider the timing of expenditure on capital items, such as machinery – these will be key around your year-end.

Purchases before the year-end date will qualify for the annual investment allowance (AIA) and help reduce taxable profits and therefore lower the tax payable. However, if left until after the year-end date, any tax relief will be delayed until the next year.

Mike Butler
Old Mill

From 1 January 2016, the AIA allowance is also expected to drop to only £25,000 from its current level of £500,000, making the timing of expenditure even more important through 2015. Check with your accountant to make sure that what you expect to qualify for AIA will in fact do so.

See also: Better Business – best options for buying new machinery

The type of expenditure you incur will also be important. Repair costs are an allowable business expense, however building costs are not, although it is worth checking on fixtures and fittings as these can qualify for the AIA.

If you are likely to be a higher-rate taxpayer then making a pension contribution in the year will extend your basic rate band and therefore reduce the amount of higher-rate tax payable.

If you operate as a company, the company can also make a pension contribution on your behalf and this will be an allowable deduction for tax purposes for the company.

Understanding your estimated position is also important because if your income is more than £50,000 then any child benefit received will be clawed back.

It may be worthwhile structuring the business so that a share of profit goes to both husband and wife to use both personal allowances and basic rate bands and therefore reduce the overall tax payable.

This may also provide the opportunity to equalise income so that you do not exceed certain thresholds such as the higher-rate threshold and child benefit threshold mentioned above.

Legislation continues to be introduced to capture any money drawn from companies in which you are a director or shareholder and a tax charge applied, so carefully consideration of your directors’ loan account balances will be needed.

This is because if at the year-end you have an overdrawn directors’ loan account it could be possible that a 25% tax charge is applied to the balance outstanding.

The areas above are not a complete list, each individual and business will have different considerations so it’s worth checking as soon as possible so that you are left with time to make any necessary changes.

The information provided in these articles does not constitute definitive professional advice and is provided for general information purposes only.

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