Getting the farm’s tax affairs in order may not be the most exciting aspect of running a business, but it is, unquestionably, one of the most important.
Additional cashflow created by ensuring income and outgoings are taxed in the most efficient manner could, for some, determine long-term viability.
Similarly, expanding and progressive agricultural enterprises need to be well informed and properly advised to ensure invested capital works hard for the business.
Peter Griffiths, a director with Hazlewoods, said: “I see a lot of examples where people do not get the right advice and if they had done things differently it could have worked out a lot better.
“Farmers can lose out if they do not get the right advice or, worse still, they do not seek any advice at all.”
Regular communication between farm businesses and their advisers is important, said Mr Griffiths.
“We tend to deal with more pro-active businesses and we are in regular communication over the issues and ideas our clients have for the coming year and the longer term.
“At the very least, farmers should be meeting with their accountant or advisers annually to let them know about any decisions they are thinking about making.”
Bad record keeping can lead to VAT errors, resulting in farmers either paying out more than they should, or owing more than they expected.
As a result, professional fees to resolve issues can increase, and you could face the stress and cost of dealing with HMRC investigations.
Telling your accountant you have done something after the event is a common problem. Take advice beforehand to ensure transactions are tax efficient. Common scenarios are gifting of assets or timing of capital expenditure.
Leaving accounts or tax returns to the last minute means it is often too late to give advice or make any necessary changes.
Failing to retain receipts and bank statements can lead to gaps in information and potentially overpaying tax as you do not have evidence of expenditure incurred.
A good example of the importance of handling big financial decisions properly is the saving which can be made by utilising entrepreneurs relief.
It is available for farmers who want or need to sell an asset – typically land or buildings – and who do not plan to reinvest the cash.
Mr Griffiths said: “This might be to pass funds to a non-farming member of the family or to sell land for housing development.”
The relief means the sale only attracts 10 per cent capital gains tax rather than 20 per cent.
He said: “Modern day land sales are often multi-million-pound transactions, so savings can be significant.”
It can be available to all trading businesses, so can apply to a partnership structure or assets used in a farming company structure.
The qualifying period is 12 months, therefore advice should be taken at least a year before a potential sale.
Making tax digital: are you in the know?
HMRC is implementing a landmark change in the way businesses report tax, but many farmers are unaware.
If your annual turnover is more than £83,000 and you operate in a partnership or self-employed capacity, you must submit a quarterly summary of your income and expenditure online from next April.
The move is part of the Making Tax Digital (MTD) initiative and will have a huge impact on agriculture where many still use paper-based records and spreadsheets. Limited companies have until April 2020 to become fully compliant.
Farmers will need to buy MTD-compliant software and learn how to operate it, as well as report their income more regularly.
Contact your accountant to find out what you have to do.
Pay attention to let farm properties
A change to Annual Tax on Enveloped Dwellings (ATED) may affect farming businesses which let residential properties.
Tax is due on houses worth £500,000 or more which are let by companies, although most farm properties can secure an exemption if they apply for it annually.
This year’s ATED tax will be based on property values on April 1, 2012, or the date of acquisition if purchased since that date. But returns from 2018 onwards will be based on the value at April 1, 2017.
Old Mill tax consultant Victoria Paley said: “Now may therefore be a sensible time to get relevant properties valued.”
Although property owners can use their own estimated valuation, HMRC can enquire into ATED returns and, if it considers a property is undervalued, could seek to charge additional tax alongside interest and penalties.
Understand the implications of business transactions and farm assets to avoid losing out when the family farm passes down to the next generation.
Many family farms in the UK will be considered asset rich, but when the time comes to pass ownership of the business to the next generation, careful tax planning is essential to maintain your tax relief entitlements.
It should be considered good and prudent business sense to fully utilise all available personal and business tax reliefs available when running the family farm, and good tax planning can help achieve this.
When it comes to the transfer of ownership between generations, one of the taxes which can cause difficulties is inheritance tax (IHT).
Many farmers overlook the need for planning for IHT, due to the availability of agricultural relief.
However, ‘farm assets’ may not always be considered for relief and good IHT planning can help the family avoid missing out on entitlements.
Farmers need to understand the implications of business transactions on their IHT planning and take advice to maintain tax reliefs available in agriculture.
It is not always easy to find the right solution to efficient tax planning and I would always suggest the first person to get advice from should be your accountant.
They will know your accounts and should have an understanding of any future tax liability. The use of specialist tax consultants can be an expense worth considering when looking at the possibility of large tax bills in the future.
Mick Davis, Cert PFS, Farmers and Mercantile