With a dreary 2020 harvest behind us, it is time to look forward to a more hopeful 2021. Although the 2020 harvest was generally a disappointment, some growers find themselves with a larger than expected tax bill in January, linked to a more fruitful 2019 harvest.

Time to Pay scheme

As most will be aware, HM Revenue & Customs (HMRC) allowed those who had been adversely affected by COVID19 to defer their July 2020 tax payments to January 2021. This has meant that some have found themselves with increased tax bills. However, help is available to settle these large tax bills with HMRC’s ‘Time to Pay’ scheme. Time to Pay allows those adversely affected by COVID-19 with tax bills of less than £30,000 to set up a payment plan to spread the cost. This may allow you to pay your bill in instalments by Direct Debit, or HMRC may decide to give you more time to pay. We can help to set this up for you.

The poor 2020 harvest will likely mean reduced profits in the 2020/21 tax year. We can look with you at reducing the two tax payments payable in January 2021 and July 2021 on account of the final tax bill due in January 2022.

Farmers Averaging Relief

Future tax liabilities can also be reduced by claims for Farmers’ Averaging relief, which averages farming profits over either two or five years. Relief smooths the profit taxable from year to year, and also potentially the rate of tax.

A claim can result in tax repayments from HMRC for previously paid tax which is no longer payable. Ellacotts review the availability and merits of Farmers’ Averaging Relief annually for all our non-company farming clients.

Annual Investment Allowance (AIA)

Investing in plant and machinery is very tax-efficient, where cashflow allows, as explained in our other article. Annual Investment Allowance (AIA) allows for 100% tax relief on the first £1M of plant and machinery. Bringing forward expenses such as repairs into the closing accounts year, rather than the new year, is also useful. Farmhouse repairs are less tax efficient as a proportion will be disallowed as relating to personal use.

Personal Tax Allowance

Does everyone in the family farming business use their tax Personal Allowance? Are some family members paying tax at higher rates? We can discuss with you whether income can be better and more tax efficiently shared across the partners and family.

Ellacotts can help you with your tax

These are just a few of the ways to smooth out your tax liabilities. Depending on your circumstances, there may be further options available to you.

Please contact Helen King on hking@ellacotts.co.uk or 01295 250401.

A member of our specialist farming and agriculture accounting team would be happy to discuss both your personal and farming business tax position.