Now is a good time to consider the year end tax
position. Carlton Collister, senior tax manager at
Grant Thorntons Witney office, provides some tips.
• REVIEW profit forecasts to consider whether you should make a claim to reduce the income tax payment on account which is due on Jan 31, 2000, or make a provisional loss claim.
• Consider whether a change of accounting date may make sense, enabling you to use overlap relief and cut your tax bill even though you have made money. This is of most use in periods of falling profits, but beware – accounting dates can only be changed every five years unless the Revenue can be persuaded that there is a very good reason otherwise.
• Is your business structure still the most appropriate and most efficient? Some sole traders would be better off as partners and vice versa.
For those trading as companies, compliance costs can be a burden in times of low and falling profits so a change may be beneficial. Warning – in all of these examples, there are many tax implications attached to a change.
• Plan capital additions and disposals for this year and next – you may want to bring forward additions to accelerate capital allowances, and defer disposals. If you have made a farming loss, this could be set off against disposals.
• Review timing of property transactions in current year to make use of exemptions.
• Pensions – many people are still making contributions even though they are making a loss. If this is the case, there will be no tax relief to claim on the contribution, which may be returned but possibly only after a long delay and with paltry interest – check your plan.
• Diversification – beware the tax implications of changing business activities. Many of the obvious diversifications are not considered to be farming activities and may need to be recorded as a separate trade or reported to April 5. If this is not done, and income is simply reported with that for the farm, then it could give rise to an investigation.
• Borrowings – some partnerships making losses over several years might be better off if individual partners borrow and re-lend to the business rather than for the business to hold the account. This can help save tax if hobby farming rules would stop farming losses being offset against other income.
• Is there the potential to make use of Capital Gains Tax retirement and rollover reliefs? *
• Recent changes to tax rules include the ability of farmers who own land and trade under a company structure to claim CGT retirement relief on the disposal of land, even if their shares in the company farming that land are not disposed of at the same time.
Although retirement relief is being phased out over the next three years, this change could be useful, says Mr Collister. Previously the Revenue had stuck strictly to the rule whereby both land and shares had to be disposed of in order for a retirement relief claim to succeed.
• October saw the latest issue of preference shares in Milk Marque being sent out to producers. But farmers should note that the nominal value of these shares should be treated as income for tax purposes. This was not the case with previous issues.
• A landowners recent success against the Inland Revenue Commissioners in a claim for business property relief on inheritance tax has astonished some accountants.
The Commissioners accepted that even though cottages were let, they were still part of the business and not held as investments and the claim was allowed.
This is very unusual and has not been challenged by the Inland Revenue, says Mr Collister. But he warns it does not necessarily mean that similar applications will succeed.
"Normally let cottages would not qualify for IHT relief. This was decided on the particular facts of the case, but it does mean that there could be ways to structure things so that one has a better chance of success in future. The decision is not binding on other cases, but it is persuasive."