Now that the 2020/21 tax year has come to an end, there are a variety of tax filing obligations on employers. One of these obligations is…
Some important changes were announced by Chancellor Rishi Sunak in the Budget delivered on March 3, and whilst the theme was continued support for businesses dealing with the pandemic in the short term, we have seen the first insight as to how taxes are going to start rising.
Further tax rises will no doubt follow as the country has to deal with such a massive additional debt burden, but for now farming businesses can plan for what they at least know is going to change. And one thing we do know is that those who are incorporated will still enjoy some advantages over sole traders or partnerships.
For many the increase in corporation tax from 19% to 25% with effect from April 2023 might seem like a disappointment.
Of course, corporation tax rates have been higher in the past, and the planned 25% rate is still lower than the rate applied to companies in many of our European neighbouring countries. For example, in Germany corporation tax rates run at 30%, and in America at 27%.
For those businesses that strive to maximise their profits and for those that work hard to deliver the greatest return to invest in their businesses, the company structure can still provide a significant tax advantage when compared to trading as a sole trader or a partnership.
those businesses trading with a corporate structure and wishing to invest in plant and equipment may well gain an advantage over those that trade as sole traders or partnerships
With a typical higher rate of income tax running at 40%, and with the National Insurance burden applied to those who are under pensionable age on top of this amount, clearly a 25% tax on profits still presents advantages to farming enterprises which retain their profits to grow their business.
It is particularly relevant where the growth of those businesses is in the form of investment in additional assets which themselves don’t attract tax relief. For example, acquiring land does not attract tax relief when it comes to the cost of the land. Therefore, minimising the amount of tax paid on the profits used to buy that land is critical in determining the land’s affordability and the return you can get off that land in the future. That applies whether you are saving up to buy the land or whether you are earning profits to repay debt taken up to buy the land.
The Chancellor did introduce a temporary enhancement to the tax relief applying to qualifying investment, increasing relief to 130% on such investment up to a limit of £10 million per annum – the so-called super-deduction. It appears that this enhanced tax relief only applies to companies that make this investment and so, in the short term at least, those businesses trading with a corporate structure and wishing to invest in plant and equipment may well gain an advantage over those that trade as sole traders or partnerships.
There were many aspects to the Budget which agri-businesses must consider carefully. Equally there will undoubtedly be many more changes to come in the not so distant future as the economy recovers and the government looks to redress the fiscal deficit and start to repay borrowing. Receiving proactive advice on managing your business in anticipation of these changes is critical.
PKF Francis Clark’s specialist rural team helps clients across the South and South West of England, and so is ideally suited to support farmers and allied agri-businesses in minimising their tax liabilities and maximising their opportunities going forward.
For more information about how our agriculture specialists help farmers, landowners and agri-businesses, click here.