Farmers seeking to buy new machinery or equipment this year must act quickly, or face losing £10,000s of tax relief, warns accountant Old Mill.
With Capital Allowances set to change dramatically from April, rural businesses should consider bringing forward their investment, says Neil Cox, senior manager of rural services. "In recent years tax relief on the purchase of plant and machinery has been relatively generous – but that is about to change.
"Currently, most businesses can write off up to £100,000 of qualifying plant and equipment expenditure against profits each year, using the Annual Investment Allowance (AIA). But from April the allowance will be slashed to just £25,000, with any expenditure above that threshold receiving annual relief of just 18%, compared to 20% at present.
"Inevitably, this will lead to higher tax bills for businesses. For example, a farming partnership with annual profits of £100,000, investing £40,000 on average in equipment each year, could see its tax bills rise by £4,500 a year."
Those with account year-ends other than 31 March / 5 April need to be particularly careful because of hybrid allowances that will be in place during 2012. "Most equipment will need to be bought before the end of March to get full relief, adding an extra degree of complication."
Old Mill will be making the most of Somerset’s Agricultural Machinery and Equipment Show on February 1 to help farmers and rural businesses decide how best to invest their money. "The show offers farmers an ideal opportunity to combine getting the best deal on new kit and planning to minimise future tax bills," says Mr Cox.
"As well as sponsoring the show’s seminars, we will be providing expert guidance on investing in the future of your farm, including how to make your proposition more attractive to banks and looking at aspects of company structure and tax planning."
