Five top tips to help year-end tax planning for estate and farm businesses

The end of the tax year is not far away and there is still the opportunity for rural businesses to make best use of 2022/23 tax allowances and to be in the best position for the start of the next tax year. The Land and Rural Practice Group at Saffery Champness has produced these top five seasonal tax planning tips for farmers and rural businesses.

  1. Make full use of capital allowances.

The super deduction, for limited companies, is available until 31st March 2023 and allows 130% of the cost of qualifying capital purchases to be deducted from profits before tax. In addition to the super deduction, there is also the Annual Investment Allowance (for qualifying plant and machinery expenditure up to a maximum of £1m in the tax year) and 100% First Year Allowances for certain eligible plant and machinery, neither of which are restricted to limited companies. These can provide 100% relief for the cost against taxable profits. If you think you may be eligible for any of these reliefs and are considering a purchase, it is worthwhile discussing with your advisor to make use of these reliefs before 31st March/5th April.

2. Maximise pension scheme contributions.

Tax-free pension contributions can be made to provide relief against an individual’s tax bill, up to the value of their annual earnings in the tax year, capped at £40,000 and tapered for high earners. Any unused annual allowance from the previous 3 tax years can be carried forward and used to make additional contributions. There is also a pensions lifetime allowance to be considered. Check whether you have available unused allowances from previous years before they are lost and make contributions to maximise tax relief before the end of the tax year.

3. Consider changing your business year-end.

The way that sole traders and partners in partnerships are taxed on their profits is due to change from 6th April 2024. There will also be a transitional year from 6th April 2023. From 6th April 2024, sole trade and most partnership profits will need to be time-apportioned and matched to the tax year. Sole traders and partnerships can choose whatever business year-end they wish and currently it is the profits for the year-ending on that date in the tax year that are taxed in that year’s return. In the future, where business year-ends do not coincide with the tax year, there will be additional adjustments needed and associated greater tax compliance costs. Furthermore, there is the potential for profits to be taxed sooner under the new rules. Sole traders and partners should therefore consider aligning their business year with the tax year.

4. Utilise capital gains allowances.

From 6th April 2023, the capital gains annual exempt amount for individuals will be reduced from £12,300 to £6,000 (to be reduced further to £3,000 from 6th April 2024). In the case of capital sales it should be considered whether they can be made before the end of the tax year to take advantage of the greater annual exemption and also whether assets can be transferred between spouses at nil gain/loss, before disposal to a third party, to make use of two annual exempt amounts.

5. Reduce income payments on account if possible.

Farm businesses that make up their accounts to 31st March should now have a clearer picture of their trading position for the year. If the taxable profits are likely to be less than in the 2021/22 tax year, it may be possible to reduce the income tax payments on account for the 2022/23 tax year and either obtain a refund of part of the payment already made before the end of January 2023 or reduce/eliminate the payment due by 31st July 2023.

Martyn Dobinson, partner at Saffery Champness, comments: “There is still time for taxpayers to consider these opportunities and to take action before the end of the tax year. It is also good practice to get into the habit of undertaking an end of year financial health check each year.”

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