We are seeing that 2021-22 has been a good year for many farmers. With this goes a likelihood of more tax to pay in January 2023.
The higher costs of feed, fertiliser, electricity amongst others are putting pressure on farmers’ cash flow.
We would advise getting your papers to us as soon as you can so that we can quantify what your tax position is, giving you the longest time to plan your finances.
There are some things which can be done to ease your tax burden.
Those clients who trade as sole traders or through a partnership have the benefit of farmers’ averaging. This is an adjustment we make through your tax return, by averaging profits over the last two or five years where there are substantial fluctuations in profit. This has the advantage of potentially utilising tax allowances and tax bands more efficiently.
We can also utilise a loss if 2022-23 subsequently turns out to be unprofitable. We can then carry the loss back into 2021-22 to set against profits which were taxed and thus secure a repayment. We will also utilise any earlier losses which have been carried forward from 2020-21 to offset against profits in 2021/22.
Where your business has not yet reached its financial year end planned capital expenditure can also reduce your tax burden but we would only recommend spending money on things which you need. Timing of expenditure is key. Where assets are bought on finance, the allowances are only available when the equipment is brought into use.
Tax payments on account which apply to individuals only (not companies) can be reduced if it is expected that income that year will be less than it was in the previous tax year. For example, the payments on account for the 2022-23 tax year will be calculated on profits generated in in 2021-22, with half due in January 2023 and half in July 2023. The claim to reduce the payments on account for 2022/23 can either be made on the 2021/22 tax return or as a separate claim. It is important to note that you need to forecast income accurately because, if payments are reduced to less than actual liability turns out to be, HMRC will charge interest. A penalty can also be charged where a taxpayer, fraudulently or negligently, makes an incorrect statement in connection with such a claim, although this rarely happens in practice. Interest charged by HMRC for late payments rose to 3.75% on 05 July 2022. It might be prudent to assess the remaining part of the year with livestock and milk prices, compared to the rising costs of production before making a claim to reduce the payments on account. If towards the end of 2022 you believe your sole trader or partnership profits will be down on the last financial year, please get in touch to discuss your options.