Despite the current downturn in farm profits, many business may still have a large tax bill from last year which will need paying by the end of January 2016.
While times might be tough at the moment, the tax year ended March 2015 may have been extremely profitable for some, especially dairy farmers who benefited from high milk prices at the time.
With large profits comes potentially large tax bills, with last year’s needing to be settled by the end of January next year, not ideal when scores of farmers are struggling to achieve any profit margin.
For Rodger Hill, business services director at Cumbria-based accountancy firm Armstrong Watson, this was where tax averaging can play a key role.
Mr Hill said: "Farmers are currrently looking at a lot of their costs at the moment as things remain tight. However, with tax bills payable early next year it is something they have to think about."
Here is Mr Hill’s rundown of the main points farmers should be thinking about:
Rodger Hill sad if farm prices improved five year averaging could be a good option.
He said: "If a business makes an exceptionally high profit of £150,000 in its 2017 accounts and its average profits for the years 2013-2016 were £30,000 we will be able to make an averaging claim and it will be treated as making a profit of £54,000 in each year.
"This should enable the farmer to avoid paying higher rates of tax on the bumper 2017 profits."