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Year-end tax planning

By Ensors Team
8th Feb 2023

I think it would be fair to say that the 2022 harvest saw mixed results, the incredibly dry and hot weather in late spring and into the summer having a significant impact on some yields, particularly seen in spring crops and on lighter land. This together with the higher input prices could make sorry reading for the overall harvest result. However, if you are one of the fortunate businesses to have not been badly hit by the drought, there are various opportunities to take in the short window up to 5 April 2023 that may reduce the potential tax liabilities.


The first step is reviewing financial performance to date to assess potential tax exposure.  If the estimated profits and associated tax liabilities are substantial, then there are some options to help mitigate this.


The business could make capital purchases prior to the financial year-end (with the kit delivered prior to the year-end except in specific circumstances). The cost of eligible capital expenditure (such as for tractors and farm machinery) can be offset against taxable profits using the Annual Investment Allowance (AIA).   The current AIA is £1,000,000; this gives most businesses the ability to claim full tax relief for eligible capital expenditure in the year it is incurred.


The cost of repairs to farm machinery and infrastructure is also generally deductible against taxable profits.  If any major repairs are required, ensure that these are undertaken prior to the end of the financial year to help reduce tax liabilities.


Another option to consider is pension contributions, subject to certain restrictions, personal pension contributions made before 5 April 2023 are grossed up for basic rate tax relief and decrease the amount of income taxed at higher rates.


Farmer’s Averaging may also assist. Farming profits can fluctuate significantly year on year, the averaging calculations look to smooth the profits over either a 2 or 5 year period so profits are taxed more consistently year to year. These calculations can be particularly helpful in reducing both liabilities in higher profit years and also tax payments on account.


As always, any tax planning decisions should only be made to compliment business activities, not just to provide tax benefit.