Another tax return deadline is done and dusted and as spring approaches (I'm sure many of you will agree, it seems to have been a long winter!), we are turning our focus to tax planning ahead of the 5 April tax year end.
Despite rising costs, particularly with fertiliser, feed , fuel and energy (see our article on Page 3 'Is the sun still shining on solar?') we are seeing some healthy profits coming through, particularly with our dairy farming clients who look to have had the best year in many. However, results have been polarising with some agricultural industries having had a tough year. We've seen those who have had a good year building up cash balances or repaying debt over the last twelve months. Cashflow is as important a focus as ever though and unfortunately, as seems to always be the case, a number of factors look set to put pressure on cashflows over the next twelve months - falling milk prices, variable selling prices, increasing costs, the reduction in Basic Payment (which is making a noticeable difference to bank balances as it diminishes year on year) and compounding this for some is the fact that tax credits are expected to cease to exist completely in 2024.
Given that cash is king and that tax rates are currently relatively low (19% for companies, or potentially 29% for unincorporated businesses) should the tax be paid on any profits this year and cash retained as a buffer for the future, rather than looking to tax plan and spend up taxable profits in order to avoid a tax bill?
Rising interest rates are also hitting those businesses with variable rate finance, and those looking to refinance. On the flip side, there are some lucrative grants out there to assist with fencing, slurry and rainwater handling and other improvements on the farm – definitely worth getting your hands on them if you can.
One big change on the horizon for unincorporated businesses that currently do not have a 31 March/5 April year end is Basis Period Reform – see Page 6 for further details. This could affect tax bills for 2023/24 and we will of course be in touch with our affected clients to discuss their options.
Farming looks set to have as interesting a year as ever and, as is always the case, Dodd & Co will be on hand to advise and guide you and your business through any opportunities and challenges that may come your way.
By Joanne Thomlinson (Partner)
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