As an agricultural business owner, it’s important to have a good understanding of the tax laws applicable to your industry.
In this guide, we’ll be breaking it down and making the complex clear.
Income Tax for Farmers
All income earned from your agricultural business, including sales of crops and livestock, rental income from land, and income from agricultural services, is subject to income tax. You’ll need to report your income and expenses on your tax return, and pay taxes on any profits you earn.
It’s important to keep accurate records of all income and expenses related to your agricultural business, as well as any tax deductions you’re eligible for. Some common deductions for farmers include expenses related to seed, fertiliser, feed, livestock, and equipment.
Agricultural Capital Gains Tax
If you sell land or other assets used in your agricultural business, you may be subject to capital gains tax. This is a tax on the profit made from selling an asset, and it applies to both individuals and businesses.
The amount of tax you’ll pay depends on factors including the length of time you owned the asset and your tax bracket. However, there are some tax strategies that can help you minimise your capital gains tax liability. E.g. you may be able to defer your capital gains by reinvesting sales proceeds in a like-kind exchange.
Annual Investment Allowance
The Annual Investment Allowance (AIA) typically provides 100% deduction against the purchase of plant machinery (excluding cars) up to an annual limit, so long as it is for agricultural purposes.
You can claim up to £1 million for plant machinery purchased between 1 January 2019 and 31 March 2023.
However, you should be cautious when it comes to timing your AIA in order to maximise your claim. The right time to use AIA to reduce your tax bills depends on a number of factors.
Unfortunately, with the uncertainty in the sector and profit fluctuations which are influenced by supermarket price wars, now may be the time to save cash rather than purchasing new machinery.
Farmers’ Averaging Relief
Farmers’ averaging is designed to limit fluctuations in farmers’ tax bills, which can be influenced by weather and poor harvest.
Agriculturalists can add together their profits from farming for 2 years or 5 years and be taxable on the average of those profits.
Please note, these rules do not apply to farmers who work out their profits using the cash basis.
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How can our experts helpAgricultural Property Relief (APR)
The Agricultural Property Relief provides a relief on Inheritance Tax on the agricultural value of land and property. This also covers applicable buildings and farmhouses used with the farming land.
Business Property Relief (BPR)
Similar to APR, Business Property Relief applies in cases where APR isn’t applicable, but it isn’t restricted to agricultural property.
You can use BPR if you have owned a property for business purposes for a minimum of two years. If you have additional properties related to the farming process, you can use BPR for the business as a whole, however it cannot be used for investment purposes.
Agricultural Tax with Ryans
At Ryans, we understand the complexities surrounding agricultural tax, including APR issues, diversification issues and exclusions. That’s why we make the complex clear by providing comprehensive agricultural tax solutions for farmers.
We’ll take care of it all, from managing your books to helping you maximise from relevant agricultural relief schemes.
For more information about how we can support your agricultural business, get in touch with our team of friendly experts today.