Timing as essential with machinery as with harvest ; FINANCEPlan purchases carefully, says Mike Butler, director of rural services at Old Mill... [Western Daily Press (UK)]
(Western Daily Press (UK) Via Acquire Media NewsEdge) Timing as essential with machinery as with harvest ; FINANCEPlan purchases carefully, says Mike Butler, director of rural services at Old Mill accountants
Harvest is complete for another year, and many farmers will be considering replacing their combine - but timing is critical to minimise tax.
The post-harvest period is always a key time for disposing of older machines to release capital, with many manufacturers also keen to do deals and secure orders. As soon as farmers know how productive their harvest has been, attention turns to cash flow and, in the longer-term, tax relief.
In good years, where yields are high and prices firm, farmers will be keen to invest and, by doing so, reduce income tax liabilities through the use of capital allowances. But the timing of those investments is critical.
The 2013 season has been difficult for many, following the appalling weather conditions last autumn. But some crops have fared remarkably well, and where profits have been made, farmers will rightly be seeking to invest.
If a business has a September year-end, then the September 2014 accounts will capture the majority of the crop sales from this summer. A combine bought now will qualify for Annual Investment Allowance, enabling up to Pounds 250,000 to be written down against this year's profits.
But a business with a March 31 year end may not find it so simple to offset its profits. Again, most of the harvest 2013 sales are likely to fall into the March 2014 accounts. But to secure tax relief, new machinery must be brought into use in the same year.
In most cases, a farmer purchasing a combine outright within the current tax year will be able to claim the full capital allowance. But if they take out a finance agreement the rules are far less straightforward - particularly if the machine is delivered to the farm in the following tax year.
Any payments made before March 31, 2014, will most likely be eligible for capital allowances, but later payments will fall into the 2014/2015 tax year. This may be useful, where farmers have minimal profits to write off, and anticipate better results next harvest - but those with large profits this season will not be able to use capital allowances to such a full extent.
And many farmers may want to sell combines now, but replace them next year, which has additional implications.
Remember a sale in your books this year will register a negative capital allowance position - yet you won't be able to claim allowances on the new machine until next year.
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