From 6 April 2016, farmers trading as sole traders or in partnership will be able to claim for an extended form of the popular “averaging” provisions.
Under the new rules, initially announced in the 2015 Budget, farmers will be able to average their profits for Income Tax purposes from the present two years to an additional five years’ option. This is a welcome change. Farming profits can vary wildly from year to year, dependent not only on the fickle British weather, but also global commodity prices.
On this topic, the Environment Secretary Elizabeth Truss said:
“Food and farming is already a vital part of the UK economy, generating £100 billion and supporting one in eight jobs. Our ambition is to make the industry a world leader, turbo-charged by talent, skills and innovation so it can capitalise on the growing demand for, and excellent reputation of, British produce.
Managing risk at a time of severe price volatility is vital. By remaining in the EU we avoid years of complication and uncertainty and can help build greater resilience in the supply chain.
Having a tax system that accommodates the realities faced by farmers in a way that is simple to understand and use will also give farmers a vital tool to thrive in the face of volatility.
Chancellor George Osborne said:
“A resilient and thriving food and farming industry is fundamental to the success of the UK economy. This government recognises the challenges our farmers face from volatile markets and we are absolutely committed to supporting them.
Today’s reforms will provide farmers with additional security to plan and invest for the future, allowing them to spread profits over a longer period of time. Over 29,000 farmers can benefit from the changes, saving an average of £950 a year.
The fairer tax system for famers is among a number of reforms to taxes, National Insurance allowances and others measures coming into effect today to back hard work, support savers and economic security at every stage of life.”
As well as having the new option to average tax over five years, farmers will also retain the choice to average profits over two years.
The dual option, announced in December, follows industry feedback in consultation. It was felt that the two-year option was well understood and had provided significant relief to farmers dealing with financial pressures, and should be retained.