Winter evenings or perhaps hours spent on a tractor can give time for thoughts and discussions regarding business structure and succession planning. The team at Ellacotts collectively have decades of experience in handling transitions in business management and land ownership with our farming and landowning clients. We also have strong links with similarly experienced solicitors and land agents, to share ideas and help you to move forward.
Here are some pointers:
1. Business restructuring
Are all appropriate family members involved in the business management and ownership? Is it time to include some new enthusiasm? Take advice, particularly as regards the tax implications of including new members, or retiring old members. There could be Capital Gains Tax and Inheritance Tax implications.
Incorporating part or all of your business into a limited company could offer significant tax savings.
Are any family members not using their personal allowance, or lower rate band, whilst some family members are paying higher rates of tax?
2. Cash flow/borrowings
Keep your accounts, cashflows and budget up to date. If budgets show a reduction in taxable profits, Income Tax payments on account can be reduced.
Check your banking arrangements- what information does the bank need, & by when? Are all correct signatures and authorities in place? Are any borrowings in the best business entity?
3. VAT
Is the information HM Revenue & Customs have in connection with your VAT registration up to date? Have there been any deaths, new partners appointed etc. which HM Revenue & Customs are unaware of?
Check whether you have any Opted to Tax property. Check the plans submitted to HM Revenue & Customs against your invoicing and bookkeeping treatment. Misunderstandings can delay transactions whilst matters are tidied with HM Revenue & Customs.
4. Machinery purchases
Annual Investment Allowance (AIA) is a key tax planning tool. It is important that you maximise the relief available by planning the timing of your spending. The current AIA is £1,000,000 (end date extended to 31 March 2023 from 31 December 2021 in the Autumn 2021 Budget). A machinery replacement schedule is an effective tool for planning tax efficient capital expenditure.
5. Transferring assets
There are Inheritance Tax reliefs available for business and agricultural property. Carefully structuring asset ownership can maximise these reliefs. Gifts may be appropriate before assets are changed (e.g. before applying for planning permission, before taking an asset out of farm use (e.g. renting out a cottage previously lived in by farm staff).
Is your Will up to date? How do you wish to provide for beneficiaries in your lifetime, or after your death? Can non-farming wealth be directed to non-farming children without impacting on the core business?
6. Legal agreements
Depending on the structure of the business, an up to date partnership agreement, or shareholders’ agreement is vital. Are assets within the business, to be dealt with by these agreements, or outside, to be dealt with by your Will? A correctly-worded partnership agreement should maximise the Inheritance Tax (IHT) reliefs available. Agreements should be reviewed regularly to ensure that they still meet the needs of the business and the family. The partnership agreement and Wills should be reviewed together, as a partnership agreement will override a Will if they are not aligned. Life assurance should be considered to ensure borrowings are covered on death, and any IHT can be paid without straining the family.
7. Pensions
Tax relief on pension contributions can reduce tax liabilities for higher rate tax payers. At the same time pensions can also be used to minimise IHT now that unused pension funds can be passed down the generations. Pension funds can be used to support the business: holding commercial property or farmland in a pension fund means that the asset grows free of any Capital Gains Tax. Rent paid to the pension fund is an expense in your accounts, reducing taxable profits.
8. Capital Gains Tax planning for any asset disposals
Capital Gains Tax legislation changes Budget by Budget. Does your Capital Gains Tax planning strategy still have the intended result? Are any changes needed? Please contact us to review.
9. Payroll
Are all staff contracts up to date? Do staff required to live in farm accommodation have contracts that make this clear? What happens when the employment ends?
Beware of self-employed staff living in farm accommodation; the property will count as a normal external let, rather than being used in the business, which can have significant tax and VAT implications. Again, what happens when the role ends- can you obtain possession of the house?
10. Review your insurances
Review your cover in the light of any change to the use of assets, or activities. Think about key man cover and life insurance should a key member of the team be unwell, or worse.
We keep our clients’ arrangements under review, and would be pleased to review your structure with you. Contact us
Information for readers: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.
