04 July 1997
Budget deemed farmer friendly
THE Labour Government handed down its first Budget in 18 years on Wednesday and apart from concerns over higher interest rates most industry experts have dubbed it farmer friendly.
A doubling of capital allowances for small and medium sized businesses – which should boost investment – has been welcomed by all sides of the industry.
But while chancellor Gordon Brown failed to highlight his definition of small and medium businesses, tax specialists Graham Latham of accountants Grant Thornton believed it would include most farmers.
The doubling means that a farmer spending £50,000 on a new tractor can now offset half of it (£25,000) against tax in the first year.
But Andersons consultant Francis Mordaunt said while the industry had been demanding increased allowances for some time only a small number of farmers would be in any position to take advantage of the package. Farm incomes are now in decline and most investment had been already taken in the more prosperous years. Furthermore, the concession only had a one-year shelf life.
Also, Agro Business Consultants said farmers would be nervous to take out loans given the reduction in farm profitability and the uncertainty surrounding the green pound and CAP in general.
Another positive measure introduced by the chancellor was a 2% cut in corporation tax for small businesses (those with profits of less than £300,000) to 21%. But while there might have been some sweeteners for the farming community, the National Farmers Union echoed concerns from financial circles that the Bank of England was likely raise interest rates to prevent inflation.
Other negatives included the 4p/litre increase in petrol and diesel taxes. Together with index linked rises in licences and higher insurance premiums, this would take vehicle costs up £1.50 to an estimated £17/acre on lowland farms, according to Richard Crane of accountants Deloitte and Touche.
But perhaps the biggest negative in the chancellors Budget is the restrictions on carry back for farming company profits.
Previously a company making a loss this year would have been able to offset it against profits dating back three years, and claim a tax rebate. But now it can only be carried back one year.
Surprisingly, capital gains tax was left unchanged by the government. However, the chancellor has promised a review of capital gains tax for his Spring 1998 Budget. Farmers can also be thankful that inheritance tax was not adjusted.