New farmers’ averaging rules
Posted On August 17, 2016 By mhauk
Legislation is currently being progressed through parliament to enable farmers to choose between averaging their profits over two years, five years or not at all. The rules take effect from the 2016/17 tax year.
Farmers will only be able to average their profits if they meet a volatility test, i.e. the profits for the 2016/17 tax year must be sufficiently different to those in the earlier year(s). The taxpayer must have a full two or five year trading history, so new entrants into the industry may be restricted in how they can take advantage.
The new rules are welcome news for farmers and provide an additional tool in their tax-planning armoury. The last two years have returned lower profits for many farmers and the old two year averaging rules would not have provided much opportunity for lowering the tax bill.
The addition of five year averaging, however, will allow the current harvest results to be averaged with better results over the past five years. Many farmers will be able to take advantage of this, lowering their tax liability and facilitating an income tax refund – offering a much-needed cash flow boost.
The legislation is, of course, subject to change until it receives Royal Assent, which is not expected until at least September. We do not, however, expect there to be any material changes in the rules.
If you wish to discuss how you can take advantage of the new rules to reduce your tax liability, please contact Hannah Farmborough or call on 0207 429 4147.
This article originally appeared on the blog of our member firm, Larking Gowen.