Farming gets cold shoulder from Brown
Farming gets cold shoulder from Brown
By Robert Harris
TAX increases to fund improvements in the National Health Service were the mainstay of this weeks Budget, the sixth delivered by Chancellor Gordon Brown.
Farming failed to get a mention. The £300m needed to kickstart the Curry reform was not forthcoming and DEFRA will have to wait until this summers spending review before it knows how much, if anything, it is likely to get.
Nevertheless, there are several changes on the tax front that will affect individual farmers.
Much of the extra money earmarked for health will come from National Insurance. This will rise by 1% across the board, but not until April 2003.
"There are ways this can be mitigated," says Tim Price, of NFU Mutual. "Everyone affected could start to contribute to a pension, or increase their contribution, which is deducted before National Insurance is charged. It is possible to invest up to 40% of a salary in this way."
Carlton Collister, senior tax manager of accountant Grant Thornton, says this and other measures suggest some farmers may be better off converting to a company, rather than remaining a sole trader or partnership.
As well as the National Insurance change, the Chancellor announced new tax breaks for small businesses, cutting the starting rate of corporation tax from 10% to zero (for businesses making profits of up to £10,000), and cutting the 20% rate by 1% for business making profits of £50,000-300,000.
Another previously announced change was the relaxation of business asset taper relief for capital gains. "All these could persuade some farmers to change to company status. But they will have to weigh up the benefits against the costs of doing so, though companies making bigger profits should gain," he says.
The inheritance tax threshold has also been raised to £250,000. But farmers may lose out on the closing of a loophole which will tighten up the transfer of non-business assets, such as let cottages, over that threshold.
Milk and livestock quota sales in companies will now be treated as income. "This is bad news," says Mr Collister. "It means the company will not be able to sell quota and treat it as a capital gain. Instead the quota will be immediately liable to corporation tax, with no default unless further quota is purchased."
Mr Brown froze fuel duties for the second successive year. But there was no further help for biodiesel. The new duty rate – 20p/litre below the "green" diesel rate – was announced in the 2001 Budget.
As far as interest rates are concerned, the Budget is reasonably good news, with little being given away.
"The general impression is that theres nothing in the Budget that will increase inflationary pressure," said Terry Donaldson, NFU chief taxation adviser. *
"At least that should take pressure off the Bank of England to raise interest rates."