Farmers will be able to average their profits for Income Tax purposes over five years under new rules which came into force on Wednesday, the start of a new tax year.
The changes, initially announced in the 2015 Budget after lobbying from the NFU, also retain the option of averaging profits over two years.
The dual option, announced in December, followed industry feedback that the two-year option was well understood and had provided significant relief to farmers dealing with financial pressures.
The move is intended to help farmers with fluctuating profits better manage risk and the impact of global volatility, particularly in the dairy industry.
Chancellor George Osborne said more than 29,000 farmers were expected to benefit from the changes, saving an average of £950 a year.
Defra Secretary Elizabeth Truss said: “Managing risk at a time of severe price volatility is vital. By remaining in the EU we avoid years of complication and uncertainty and can help build greater resilience in the supply chain."
In the article below, Mr Osborne outlines in more detail why the Government introduced the policy.
Today, tens of thousands of farmers across Britain will benefit from a new fairer tax system.
It’s all part of our plan to build a resilient and thriving food and farming industry and to ensure farmers have the tools to succeed.
This industry is a cornerstone of the British economy, generating £100 billion and supporting one in eight jobs.
However, I recognise the challenges you face from volatile markets and managing risk.
That’s why under the new rules, you will now be able to average profits for Income Tax purposes from two to five years.
This means more protection against market volatility and more security to plan and invest for the future.
You will be able to spread volatile profits over consecutive good and bad years, so that you can smooth your tax bill, making it easier to manage.
The tax system will now further reflect the market realities you face.
A quarter of our farmers - over 29,000 - are expected to benefit from the changes, saving an average of £950 a year.
It will also help our dairy industry which has seen recent global price volatility.
As well as having the option to average tax over five years, I’m also retaining the choice to average profits over two years.
I know this averaging option has already provided significant relief to farmers dealing with financial pressures, and hope it will help many more.
My ambition is to make the British food and farming industry a world leader, built on talent, skills and innovation.
It needs to be resilient to capitalise on the growing demand for, and excellent reputation of, British produce and that’s exactly what the new tax system will help to deliver.