Farmers are paying too much tax, warns rural accountant

A sharp fall in farm profitability over the last year means many businesses will be paying too much tax.

With tax liabilities based on previous years’ profits, it is likely that a large number of farms will find their payments set at levels higher than this year’s actual performance.

Final balancing charges for the tax year ending April 2009 are due to HM Revenue and Customs at the end of January. So now is the time to ensure tax payments are correct, warns rural accountant Old Mill.

“With rising inputs costs and overall farm incomes down for this year, farmers need to reduce their payments in line with their margins,” said Old Mill’s Catherine Vickery.

“It’s important to get the tax liability right because the Revenue rarely pay interest in overpayments. Get a profit forecast for the remainder of this tax year and submit a claim to reduce your payments.”

There is no need to produce figures at this point to back up the claim, she explained, however if the end of year profit turns out to be greater than predicted, expect to find yourself liable for interest on the extra money owed.

There is some good news for businesses which have found themselves struggling this year.

“The general economic downturn has prompted HMRC to relax its payments schedule for those companies saddled with a big tax bill from last year’s accounts.

“They are now able to defer their payments and spread them over a number of months if cashflow this year is tight.”

In general most farms will have put aside enough funds to settle both the balance on last year’s tax bill and the initial payment for the current tax year which is also due at the end of January, she reports, although a number may have to approach the banks to cover any short-term deficit.

In the main any shortfalls will be covered by the early arrival of single farm payments to producers across the country.

“We’ve had relatively few requests for overdraft extensions or other additional borrowing as a result of the upcoming tax deadline,” said Dick Mason, policy director at Lloyds TSB’s agriculture division.

“This year has been tougher with higher inputs prices and diminished returns so be prepared that the early payments will only defer the pressure on cashflow.”

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