Chancellor George Osborne unveiled his fifth Budget last week amid signs of growing levels of confidence in the UK’s economic condition.
He labelled his Budget one for the ‘makers, doers and savers’.
Farmers are certainly renowned ‘makers and doers’, so was this a Budget for them?
With no substantial changes to inheritance tax, capital gains tax and VAT, there were still some important measures introduced which provide some tax-planning opportunities.
Increases in the personal allowance over the last five years mean that someone earning £10,000 has seen their take-home pay increase by £982 during the period 2007/08 to 2014/15. This equates to an 11.1% increase.
Those earning £115,000, in contrast, have seen a reduction in net pay over the same period by £2,556 due to the withdrawal of personal allowances for those earning over £100,000.
The increase in the personal allowance to £10,000 from April 6 this year means that farmers should reassess how profits are apportioned within the family.
Wage levels for spouses and older children working on the farm may have been set some time ago when personal allowance limits were lower, and family wages may have been kept deliberately under the threshold to save registering for PAYE.
Now may be the time to review family wages to ensure an appropriate wage is paid commensurate to work done, and so reduce the overall family tax liability.
From 2015/16 married couples and civil partners can transfer up to £1,050 of their personal allowance to their partner, but only if neither individual pays tax at the 40% rate. The Government estimates that 4.2 million couples will benefit.
From April 6 this year employers who pay employer’s national insurance contributions will be entitled to an employment allowance of up to £2,000 per year, thereby reducing the national insurance bill.
This is an easy relief to claim and is made through the Real Time Information (RTI) process.
From April 6 next year employers will no longer be required to pay employer’s national insurance on earnings paid up to the upper earnings limit to any employee under the age of 21. This may encourage some farmers to take on students or, as mentioned previously, reassess how much their children are paid on the farm.
The annual investment allowance (AIA) the amount which businesses can claim for plant and machinery purchases against tax is a subject close to farmers’ hearts given buying machinery has been a relatively easy way to reduce the tax bill in recent years.
The AIA is, however, a political football.
Over the years since it was introduced in 2008 it has been set at £50,000; £100,000; £250,000; and for a brief (and costly for some) period fell to £25,000.
Timing of machinery purchases can be crucial to achieve maximum benefit.
The current level of allowance of £250,000 was set to expire on December 31 this year, but this relief was not only increased to £500,000, but extended to December 31 2015.
Most farmers neither spend in excess of £250,000 per annum nor generate profits in excess of that sum, so only a few will benefit from the change.
All farmers, however, must be aware of when the relief levels change and how these interact with their accounting year end.
This is particularly important in the accounting year which straddles December 31 2015 when the level of the allowance reduces to £25,000.
A word of warning, too. Claiming full relief will ensure taxable profits are lower than accounting profits in the short term. Once the new relief reduces, as it inevitably will, the position will reverse and taxable profits will exceed accounting profits.
* David Walker is a partner at Thomson Cooper Accountants in Dunfermline.