As we enter a new term of government with a Labour majority there has been much worry in the sector of the future support for land based businesses and the rural economy. However, having recently returned from my first visit to Groundswell I was encouraged to see and hear a new generation of farmers and landowners looking forward with positivity, hungry to make the most of new opportunities and excited about the future, ready to embrace change in this resilient and diverse sector.
History has shown us that the agricultural industry is resilient with the ability to adapt to change and now is no different. However, there are also so many new opportunities. What will be important is for the rural voice to be heard. Making sure landowners are represented on local and national groups will be crucial to this, as well as working with the NFU and CLA.
With a new government we will be looking for a stable policy with a long term vision and joined up thinking so businesses can plan, make decisions and invest appropriately.
Since our spring newsletter, as well as attending Groundswell, we also attended Devon County and Royal Cornwall shows and we are looking forward to Honiton and Melplash in August, followed by the The Dairy Show in October. We have also seen Alice Barclay, who is currently undertaking study for her final ICAEW exams, receive an award for achieving joint first place in her ACA Certificate Level Assurance exam. Further Oliver Wrelton was selected for England U20 South-West Rugby Team. Congratulations Alice and Oliver.
We hope you find the articles in this newsletter interesting and helpful. If you have any questions please get in touch.
SAM KIRKHAM Partner and Head of Farms & Estates Team
MARCH RESULTS – WHAT SHOULD WE EXPECT?
At the time of writing this article I have now had the first of the March 2024 results come through. So, what have we seen from the farming industry in the financial year to March 2024?
Dairy
It will come as no great surprise that most dairy farmers showed fantastic results for the year to March 2023. The average milk price increased by 12-15ppl for the majority of dairy farms, resulting in profits more than doubling in most cases.
However, since then we have seen a decline in the dairy industry. This decline varied depending on the milk contract that the farmer was tied into. Some Arla contracts have seen a reduction of over 10ppl to March 2024, putting them back to March 2022 prices. Some Tesco contracts however, which did not see the peak prices, have experienced a less extreme decline of around 4ppl on average, putting them back to somewhere between the 2022 and 2023 milk prices. To put this into perspective, the reduction in milk income (and profit) for a farm producing 2 million litres could differ by £120K in one year dependant on their milk contract.
As a result, we envisage the decline from the incredible March 2023 year to vary heavily depending on the milk contract. However, as we all know the bottom line does not come down solely to milk income, and that cost control and efficiency both play a very important role.
Cost control and future contracts helped some farmers to excel in 2023, especially those receiving near 50ppl on their milk but still buying straights and commodities at below spot market prices. However, a year on, and future contracts mean a much lower milk price with commodities costing more than the prior year, and, in many cases, more than the spot price. This puts pressure on cash flow for some within the 2024 financial year, particularly when coupled with the drop in milk price.
Other sectors
The wheat and arable market have also seen big swings in commodity prices. Wheat prices at the end of March 2023 averaged £200-£260/t (depending on milling quality) compared to £175-£235/t in March 2024, which is a 15% reduction. This has impacted the cereal turnover in the accounts that we have seen so far.
In addition, fertiliser prices were upwards of £500/t in March 2023 compared to £280/t in March 2024. This means that fertiliser in opening stock and for the spring drilling is a far greater expense then seen previously, therefore tightening the cereal margins seen to March 2024.
This may all seem to be doom and gloom, but it was well believed within the industry that the period of high output prices would be short-lived.
General planning
Cashflow for farmers has tightened over the last 12 months. A consideration in the short-term, for those under selfassessment, is the July payment on account. Payments on account are based upon the assumption that the previous year’s taxable profits will continue into the current year. In a year where farming profits are likely to be reduced, payments on account should be reviewed and potentially adjusted, to ensure that they are not overstated. This can have a significant impact on cash flow.
Farmers averaging can also provide a repayment of tax paid at higher rates in the previous year.
Should taxable profits decline (after considering capital allowances on plant and machinery) then an overpayment to HMRC will not be refunded until after the tax return has been processed.
If you wish to talk this through, then please do get in touch with your usual Albert Goodman contact.
ROSIE TURNER
Farms & Estates Team
rosie.turner@albertgoodman.co.uk
What does a Labour Government mean to you?
As expected, Sir Keir Starmer and the Labour party have won the UK General Election with a majority.
What does this mean for farming businesses and landowners?
The below sets out the Labour manifesto and considers what changes they may implement over their term.
Interestingly the word “farming” only appears twice in the whole Labour manifesto.
TAX
Labour’s tax policy was attacked by Rishi Sunak during the election campaign. We will now have to wait and see whether he was right.
Labour was clear that they would not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT. However, they did not commit on maintaining the income tax bands, so we could see a change to the starting income bands where you pay 20%, 40%, and 45% tax.
VAT may become levied on school fees; this will increase drawings for many businesses who choose to send their children to independent school. This will negatively impact cashflow for those affected.
For those businesses trading within a corporate structure, Labour have committed to cap corporation tax at the current level of 25%. This is good news for farming businesses as it gives certainty on their tax rates.
There was also a commitment to retain the annual investment allowance for small businesses. They also indicated they would give businesses clarity on what qualifies for allowances. This will help provide certainty for businesses completing big capital projects.
There is always a nervous nature around what isn’t mentioned rather than what is mentioned. Both inheritance and capital gains tax were not mentioned in the manifesto. We will have to wait and see what changes a Labour government might take but given the pressure on public spending and Labours commitment to increase it, the money will have to come from somewhere, likely a combination of more tax and debt. We could see a change to tax rates or reliefs, but any changes could stifle growth that the country needs.
FARM POLICY
The Labour manifesto was clear in recognising that food security is national security. They also committed to undertaking the following actions:
Introduce a land-use framework and make environment land management schemes work for farmers and nature. We need to ensure this is not a top down approach and landowners have a voice in this process.
Work with farmers and scientists on measures to eradicate Bovine TB so that they can end the badger cull.
Will set a target for half of all food purchased across the public sector to be locally produced or certified to higher environmental standards.
Interestingly, they made no commitment to the existing Defra budget as was promised by the Conservatives. Could this mean that farming business see a further reduction in farm subsidies?
PLANNING
Labour have been clear that they want to reform planning to enable new homes to be built. This should be beneficial to farming businesses with development land and/or barns for conversion.
A worrying statement within the manifesto was that Labour will further reform compulsory purchase compensation rules. This is to ensure that, for specific types of development schemes, landowners are awarded ‘fair’ compensation rather than inflated prices based on the prospect of planning permission. This could have a substantial impact on farming businesses who may have to buy more land to remain a financially viable business.
EMPLOYMENT
The cost of labour has increased substantially over the last few years. Any changes to rights and pay would impact on the bottom line and influence future decision making in the business, particularly where finding labour is already a problem.
Labour have confirmed they will:
Introduce new employment legislation within 100 days of taking government. This will include banning exploitative zero hours contracts; ending fire and rehire; and introducing basic rights from day one to parental leave, sick pay, and protection from unfair dismissal.
Make sure the minimum wage is a genuine living wage. They will change the remit of the independent Low Pay Commission so for the first time it accounts for the cost of living. Labour will also remove the discriminatory age bands, so all adults are entitled to the same minimum wage, delivering a pay rise to hundreds of thousands of workers across the UK.
Changes to minimum wage could substantially increase employment and direct costs. It could also substantially impact output prices for sectors like Dairy, Pigs, and Poultry where suppliers cost increases may be fed down the chain rather than to the end consumer.
It will also be interesting to see how a substantial change to minimum wage would impact inflation with wage growth in the UK already sitting at 6%.
RENTAL PROPERTY
Many farming businesses have rental properties. Labours plans set out to:
ensure homes in the private rented sector meet minimum energy efficiency standards by 2030; and immediately abolish Section 21 ‘no fault’ evictions, prevent private tenants being exploited and discriminated against and empower them to challenge unreasonable rent increases.
These changes will give much greater power to the tenant. The changes to energy efficiency will increase investment needed by the landlord but this has been a known cost for a period of time.
Changes to Section 21 will cause landlords problems with evicting troublesome tenants. Empowering tenants on rent reviews will likely cap rental income and could make the future of being a landlord for farming businesses unfavourable.
CONCLUSION
We will see change and reform under this new government and maybe that is needed to drive growth and rebuild our public services.
The impact to the farming community is hard to quantify right now. This is due to the lack of detail within Labour’s manifesto.
It was evident in the change in government in 1997 that the fear of change was worse than the actual change from a tax perspective.
The concern is that the system is much more broken than then. We now must wait and see what this new government will do. Speak to your advisors and plan.
TOM STONE
VAT – PARTIAL EXEMPTION AND FARMING
For any VAT registered farming business it is important to be sure that the correct VAT treatment is applied to all of the activities undertaken. Not only does this mean that VAT can then be correctly declared on any standard rated or reduced rated sales, but it will also mean that the farm’s VAT accounting can then maximise the recovery of the VAT it incurs on its purchases and expenses.
Partial exemption is a feature for those farms which have a mixture of taxable and exempt business activities. In this context taxable covers the supplies made which are zero rated, reduced rated or standard rated for VAT purposes, for example sales of crops, livestock, sales of electricity and contracting. For most farms any VAT exempt business activities will come in the form of property rentals i.e., residential lets or the letting of non-residential property which is not subject to an option to tax.
Whereas the VAT incurred on any costs associated with the taxable business activities can be claimed, the level of any VAT incurred in respect of exempt business activities has to be monitored as it can only be claimed where it falls below certain limits. These are the partial exemption de minimis limits – where the VAT incurred on costs attributable to the exempt activities has to be less than both £625 a month on average and less than 50% of the total input tax figure for it to be claimed.
There are some simplifications to the process, but the basic position is that any farming operation that has exempt business activities will have to consider how partial exemption affects its VAT recovery. Partial exemption calculations will usually have to be carried out for each VAT return and are also subject to an annual adjustment at 31 March, 30 April and 31 May depending on when the VAT returns end. Any adjustments required to the input tax claimed during the year are taken into account on the first VAT return for the following year.
So, for a 31 March year with a coterminous VAT quarter, the annual adjustment will need to be included on their 30 June VAT return.
This is an area that HMRC will look at on a compliance check and there is scope for mistakes to be made which in turn can lead to an assessment for the VAT involved together with interest and penalty charges. Common mistakes are that the VAT incurred on costs relating to exempt supplies are claimed or that the VAT incurred on general overheads are not apportioned to reflect their taxable and exempt elements.
Anyone affected by partial exemption should review its arrangements and expected spending at the earliest opportunity to ensure that it can comply with the provisions and, just as importantly, carry out the required planning to ensure that wherever possible it can take advantage of the de minimis limits.
If you require any specific advice in this area or assistance with the mechanics of your partial exemption calculations, please contact Steve Chamberlain or Richard Taylor.
VAT
steve.chamberlain@albertgoodman.co.uk
VAT
richard.taylor@albertgoodman.co.uk
Are dividends more tax efficient than a salary?
For many years, owners of limited companies have chosen to remunerate themselves by way of dividends rather than salary. The fact that dividends do not attract national insurance and that corporation tax rates have been as low as 19% has caused this approach to be widely adopted in recent times.
However, more recently we have seen the highest rate of corporation tax increase to 26.5% in certain circumstances and the rate of National Insurance (NI) for employees has been cut. Given that the ‘rules of the game’ have changed, we need to consider whether any remuneration plans that are in place still represent the best way forward.
For example, let’s consider a shareholder/director who pays themselves a salary of £60,000p.a. They work for a profitable company that makes profits of £160,000p.a. and therefore pays corporation tax at a marginal rate of 26.5%. The company has performed well and has made an additional windfall profit of £30,000 due to the efforts of this individual. If this additional amount is to be directed to the individual concerned, should it be paid as a bonus or a dividend, in addition to the existing salary?
OPTION 1: PAY A BONUS
If a bonus is paid, then the bonus will attract employer’s NI at 13.8%. If the bonus is £26,362 then the employer’s NI charge will be £3,638. Together, these amounts will wipe out the windfall profit of £30,000.
As a higher rate tax-payer the individual will also suffer income tax at 40% = £10,545 and employee’s NI at 2% = £527.
The individual will take home £15,290 of the £30,000 windfall profit.
OPTION 2: PAY A DIVIDEND
Alternatively, if a dividend is paid, then the £30,000 windfall profit will first be subject to Corporation Tax at 26.5% = £7,950. The shareholder director will then receive a dividend of £22,050. This amount will be subject to higher rate dividend tax at 33.75% = £7,442.
The individual will take home £14,608 of the £30,000 windfall profit.
CONCLUSIONS
As you can see in this very simplistic example, it is actually advantageous for the individual to take the salary rather than the dividend. The differential is even more apparent where individuals are above the state pension age and therefore do not suffer employee’s NI. In addition, for companies where Research and Development Tax Credits are available there is a further incentive to pay salary rather than dividends.
As always, everyone’s situation is different and there are many factors to consider when deciding upon a remuneration strategy. As such, professional advice is a must.
SCHOOL FEES – GETTING THE PLANNING RIGHT
School fees continue to rise due to staff wage increases, property maintenance and heating and electric costs, in addition to the anticipation of VAT on school fees.
Many families are fortunate enough to receive assistance from grandparents with either surplus income, an inheritance or through tax planning. In all cases though, it is important to get the tax planning right in order to avoid a sudden, unexpected tax bill.
GRANDPARENTS
WITH SURPLUS INCOME
Where grandparents are paying fees out of income, consider the inheritance tax (IHT) planning. Any individual can give away up to £3K a year which is exempt from IHT, otherwise the gift will be chargeable if death occurs within seven years. An alternative is to ensure that:
The gift forms part of the grandparent’s normal expenditure,
is made out of income; and
leaves the grandparent with sufficient income for them to maintain their normal standard of living.
In this case, the regular gifts could be exempt from IHT.
If the grandparent is paying higher rate tax on income received, and they have surplus income and capital, the grandparent could also consider giving the child an income producing asset so income tax is payable at the child’s tax rate, which could be lower. Advice would need to be taken regarding the capital gains tax (CGT) on the gift. Consideration should also be given to whether a trust should be used to protect the asset.
GRANDPARENTS GIFTING
AN INCOME PRODUCING ASSET
Often tax planning is undertaken to pass assets to minor children, or into trust for children, from which the income is used to finance school fees for the child. This planning is not income tax efficient if the assets are passed from the parent to the minor child – in most cases the income would remain taxable on the parent. However, if the grandparent gifts the asset, the future income arising could be taxable on the child.
Care is required to consider the CGT on the transfer. For those with family trading businesses, such as as farms, holdover relief could be available on the gain so that it is deferred to the later disposal of the asset by the child. For IHT purposes, the grandparent must survive seven years from the date of gift. However, if the assets qualifies for business property relief, then assuming the child retains the asset and they remain qualifying, IHT should not arise on a death within seven years.
Where the children are minors, often a trust is used so that control is retained by Trustees which could extend beyond the child turning 18 years old. The Trustees could be the grandparents or the parents.
LIABILITY FOR THE SCHOOL FEES
Where trust income is used to pay for school fees, consideration needs to be given to the liability for the school fees. If the invoices are made out to the parents, then it is their liability to pay the school fees. If the trust income is used to settle the
parents’ liability, then the income will be assessable on the parents. As such, any income tax planning to use the child’s tax free personal allowance, will be lost. The school invoices would need to be addressed to the minor child or the Trustees. An alternative is for the trust to make a one-off payment of capital to cover the fees for the whole time the child is at school.
ANTI-AVOIDANCE RULES
There are anti-avoidance rules which, if they apply, instead of taxing the income on the child, will tax the income on the parents. The rules would apply if the parents gifted the company or partnership shares to their child or provided the cash for the child to purchase the shares. The rules could also apply where the dividends, or partnership profits, are voted by the parents – for example where the parents are the only directors of the company or have full power to vote the dividends or profit share.
The anti-avoidance rules would also bite where the parents provide the shares to the grandparents to gift on to the children, or where the grandparents make a new subscription for shares in the parents’ business before transferring to the children, or to trust for the children.
UNIVERSITY FEES
We are often asked whether the family company could pay for the shareholders’ children’s university fees, particularly if the child is doing a business-related degree. If the adult child is an employee of the company, the payment of fees could be part of their remuneration package and taxable as a benefit in kind. The fees could also provide a tax deduction for the business. However, care is required to ensure there is no argument that the arrangement is not commercial – if you would not enter this kind of remuneration package for another, similar employee, it is likely the benefit in kind would be taxable on the director parents.
It may be possible for the adult child to purchase shares in the family company. Assuming the company has sufficient retained profits, dividends could be voted on the shares to pay towards university fees. However, care is required to consider the antiavoidance rules discussed above.
COMPANY LOANS
Finally, where a parent has previously loaned funds to their company, they could withdraw these funds to pay university or school fees tax free. Alternatively, they could charge interest on this loan, which may partly be within their tax-free savings allowance, and partly chargeable, but the net tax cost may be nil given the company will obtain corporation tax relief on the interest.
If there are insufficient loan accounts then the parents could borrow from the company and pay a commercial rate of interest on the loan. Alternatively, the company could pay tax on the overdrawn balance until the loan is repaid in the future.
In summary, great care is required if assistance with school or university fees is given by a grandparent or through a parent’s business. If you require advice or assistance with school fees please get in touch.
PAYING SCHOOL FEES IN ADVANCE
Many consider paying school fees in advance, particularly where they anticipate school fees increasing or VAT applying. Care should be given to paying school fees up front, particularly if this causes additional income and tax to be paid on that income to settle the fees. For example, I am aware schools are suggesting paying two years in advance. Assuming additional annual dividends from company shares are required to fund this, an income tax charge of 8.75% to 39.35% could arise.
If VAT does not get applied to school fees, does not come in until after that twoyear period, the VAT rate is lower, or anti-forestalling rules are applied, then it may cost more in tax overall to pay up front.
It is also a good idea to review the school’s balance sheet to ensure there is little risk that it could fail resulting in a loss of the fees to other creditors. Also confirm that should the child wish to move schools the fees will be refunded.
TRUST REGISTRATION SERVICE
– A REMINDER FOR FARMING PARTNERSHIPS
The changes to the Trust registration Service (TRS) have been effective for a little while now. However, while this was initially introduced with a ‘soft landing’ period, there is now a penalty regime in place meaning that it seems like an appropriate time for a reminder.
The TRS is a register of the beneficial ownership of trusts and is managed by HMRC. It contains certain information about each trust and the people connected to the trust, including settlors, trustees and beneficiaries.
Previously, trusts were only required to register with the TRS if they had a UK tax liability. This has since been extended to all UK trusts, unless they meet specific exemptions.
Which trusts need to register?
All trusts with a UK tax liability, regardless of their residency.
All UK trusts unless covered by one of the exclusions (please refer to the Summer 2022 Newsletter).
Non-UK resident trusts that acquire UK land or property.
Non-UK resident trusts that enter into a business relationship in the UK and have at least one UK resident trustee.
Any new trusts should now be registered under the TRS within 90 days of creation, unless covered by one of the exclusions.
Bare Trusts
A bare trust is the simplest form of trust and is used to hold an asset for a particular beneficiary. Bare trusts are often used where beneficiaries are minors, until they reach an age
where they are legally able to take ownership at 18.
It is also common for bare trusts to be used in partnerships, where assets are held by partners in trust for the benefit of the partnership. This is particularly common in agriculture but can affect many other sectors.
All bare trusts should be registered under TRS, unless they meet one of the exemptions.
Farming Partnerships
Farming partnerships do not escape these rules and need to consider their land ownership in case they are affected. LLPs and companies can own land in their own right but partnerships cannot as they are not legal entities. This means that some or all of the partners often hold land as trustees for the partnership.
The benefits of land being held as a partnership asset can be considerable, as partnership property can benefit from 100% Business Property Relief (BPR), as opposed to only 50% relief if owned by a partner who uses it in the business.
BPR is particularly beneficial where the market value of the farmland, or farm buildings, exceeds its agricultural value.
Where land is owned by trustees and the owners on the deeds or at land registry are the same people as the beneficiaries, there is no requirement to register on the TRS. However, in partnership situations, often the legal owners are different to the beneficial owners, the partnership, in which case there is a requirement to register.
KATE HARDY
Farms & Estates Team
kate.hardy@albertgoodman.co.uk
If no partnership agreement is in place, or any other express deed, there is no requirement for the partnership to register.
This TRS registration process and due diligence may require administrative work and costs in the short term but will provide clarity when considering inheritance tax reliefs and succession plans in the long run.
As a reminder, if you are within the scope of the TRS, you must:
1. Register the trust with HMRC; and 2. Keep the information held on the service up to date.
HMRC accept that registering a trust is still a fairly new requirement and trustees may not be familiar with the process. HMRC will therefore not charge a penalty as long as action is taken to correct this within the time limit they set.
If you fail to take any of these steps within the given time limit though, HMRC can charge a fixed penalty of £5,000.
If you are concerned that your partnership may be within the scope of the TRS or would like assistance with any of these matters, please do get in touch.
Stamp duty land tax and mixed purchases
When purchasing a new property, Stamp Duty Land Tax (SDLT) can often amount to a significant sum which needs to be factored into the overall cost. Where, however, the property is one with land, the possibility of applying the lower mixed-use rate can result in sizable savings.
The residential rate currently amounts to 5% on purchases over £250,000, increasing to 10% on the part of the cost over £925,000 and 12% on the part in excess of £1.5 million. Where a residential property is already owned or the acquisition is by a limited company, there is a further 3% charge on top of this. For mixed-use properties however, there is a 2% charge on the part of the cost between £150,000 and £250,000 and the cost in excess of £250,000 is all liable at 5%, regardless of the total purchase price.
There is a misconception that, provided the property includes some land, the mixed-use rates can apply. However, the rules state that the residential rates should apply to standalone houses, but also to houses with accompanying gardens and grounds that are ‘occupied or enjoyed with the dwelling’. This can include land such as paddocks, woodland or other areas where it is used for the overall enjoyment of the house, regardless, to a degree, of the area. For Capital Gains Tax purposes, the Principal Private Residence Relief, exempting any gain on the sale of a house, also covers up to 0.5 hectares of garden, however no such limit, or clarity, exists for SDLT. Instead, anything that is not used commercially can be deemed to be ‘grounds’, resulting in the residential rates applying to the entire purchase price.
The future intended use is not taken into account when deciding whether a property is mixed-use or residential, only the position at the purchase date. Importantly, the historic use can be considered. As such, a house with 25 acres of paddocks and a small orchard that has always been used privately, e.g. for horses, is likely to be classified as a residential purchase. If the same property had instead been used as a chicken farm, then there is a good chance it would be deemed to be a mixeduse purchase with the lower rates applying, regardless of what the purchaser will do with it.
The recent case of Modha v HMRC related to a farm with 8 acres. The purchaser claimed that the field was used commercially at the time of purchase and applied the mixed-use rates. The tribunal however, determined that the field had ‘no commercial use capable of giving it a separate purpose’ and that it was ‘available for use with the dwelling and therefore part of the grounds’. The higher residential rates therefore applied.
Retaining evidence of the historic use, as well as factors such as the layout of the property, the proximity of the land to the house, the total acreage and whether or not there are any planning or legal constraints, could be important in the event of a challenge by HMRC.
LIZ JONES Farms & Estates Team liz.jones@albertgoodman.co.uk
ECONOMY ROUND UP
The economy, including inflation and interest rates, has been at the forefront of our minds over the past 12 to 24 months.
We saw a technical recession at the end of 2023 and since then we have seen the UK economy bounce back and have some mild growth. This has left farming businesses facing higher interest rates for longer than hoped, and experiencing costs that continue to rise. Direct input costs have started to plateau but there is still a fear this could reverse very quickly.
INFLATION
As of June 2024, inflation is currently at 2.3% compared to a high of 11.1% in October 2022.
With inflation at 2.3% it sounds like it is now under control, however, we must remember that this is the average inflation across different areas of the UK economy. If you look at the underlying data you will see that energy inflation is dragging the average down, whilst services inflation sits at around 6%.
This gives the Bank of England (BoE) cause for concern. The BoE wants to see the underlying data showing a decrease from the above before we see base rate reductions. The only way that they can impact this is by keeping the base rate at the current level of 5.25%.
The worry is that if this does not happen, then what can we do to curb inflation at all?
The truth is that wage growth has had a big impact on inflation. Wage growth year on year currently sits at 6%. This has been caused by labour tightening from a lack of immigration, EU nationals leaving the UK after Brexit, and lots of active workers moving into the nonactive category. It has also been influenced by the 10% living wage increase in April 2024.
NATIONAL DEBT
As I write this article we are in the midst of an election. Voters are concerned about public finances and government debt has risen from 66% of GDP in 2010 to 100% of GDP as things currently stand.
Our public services are very lean and incredibly strained which leaves whoever is in charge come the
4th of July in a tough position. A new government will either need to grow the economy to start bringing this % down and enable future borrowing or increase taxes in order to fund future investment in government services.
Liz Truss has certainly shown that the markets will not just continue to lend the UK money without a longterm plan.
For farming businesses, this puts long-term capital tax planning at the front of the mind. The capital tax regime is an easy target for a new government, but the question is, would any changes actually raise much tax?
INTEREST RATES
The BoE base rate currently sits at 5.25%. If you had asked economists at the start of the year to predict the position, then they would have expected a base rate cut by now. The BoE has delayed making these cuts due to the issues outlined above.
High street banks are still expecting rate cuts and they predict that by the end of next year the BoE base rate should be just below 4%. However, it is expected that the size of the initial rate cuts will be small in an attempt to continue curbing inflation.
For farming businesses with variable rate loans, this continues to put strain on cashflow with the end nowhere near in sight. For those taking on new debt, it leaves them in a predicament as to whether to fix, and know where they are, or take a risk and hope that rates come down.
TOM STONE Farms & Estates Team
Class 2 National Insurance Contributions (NIC) –Changes from April 2024
“The Government will reform the tax system by abolishing Class 2 selfemployed NICs. From 6 April 2024, no one will be required to pay Class 2 self-employed NICs.” Autumn Statement 2023.
A lot has been said about Class 2 NICs being abolished, but unfortunately it is not that simple and will not be the case for everyone.
Class 2 NI is paid by the self-employed and provides a contributory year towards the individual’s state pension. The amount payable depends upon the individual’s taxable profits for the year. For 2023/24, this is as follows:
Individuals who are self-employed with profits below £6,725 can voluntarily pay the Class 2 NICs of £179.40 for 2023/24 to gain that qualifying year for state pension purposes.
From April 2024, individuals earning over £12,570 will not be required to pay Class 2 NICs and will still be entitled to a qualifying year for state pension purposes. However, those earning below £6,725 will still need to pay Class 2 NICs if they need a qualifying year for their state pension. Therefore, the tax has not been completely abolished.
This might be particularly relevant for farmers with lower incomes, or in years where purchases of machinery results in capital allowances which reduce taxable profits significantly. Taxable profits can also be impacted by averaging which can change the amount of Class 2 NI due.
If your taxable profits are below £6,725 but you already have sufficient qualifying years for your state pension, then there is no benefit to making further voluntary contributions. If, however, you do need further contributing years then it is recommended that you pay Class 2 NICs as this will be cheaper than paying the alternative Class 3 NICs.
In order to plan for these changes and to ensure that you qualify for the full state pension, it is important to know how many qualifying years you have, how many more you need and how many years you have left to make these qualifying contributions. This information is available on your personal tax account or can be requested either online or by phone from HMRC.
SOPHIE HARRIS Farms & Estates Team sophie.harris@albertgoodman.co.uk
XERO TOP TIPS
- REVIEWING
YOUR VAT RETURN
The VAT return process, typically at the end of the month or quarter, is a good opportunity to ensure that your Xero is up to date and reconciled before pressing the button to submit.
As with most things, everyone will have their preferred way of doing this but here are a few of my top tips for ensuring correctness of the return before submitting to HMRC:
1. Inputting all expenses and sales invoices. This may be by including manually, using Xero files, or add-ons such as Hubdoc.
2. Reconciling the bank – sometimes a step skipped for those on an accruals basis but doing it at this point can make it easier as the transactions are fresh in your mind. It is often a good time to notice missing invoices or duplicated entries too.
3. Check the bank balance once reconciled using the Xero bank reconciliation report (Reports > Bank Reconciliation). If everything is reconciled correctly then this should agree to your statement balance. By doing this on a monthly or quarterly basis makes it a lot easier to spot any differences, rather than leaving until your year end.
4. Use the ‘review’ VAT return screen. Reviewing either the ‘transactions by VAT box’ or ‘transactions by VAT rate’ options allow you to see the detail of transactions making up your VAT payable or reclaimable figure. This is a crucial step, especially if the figure showing is higher or lower than expected. By spotting an error here, you can click on the transaction to edit, meaning you are not having to pay or reclaim VAT at a later date to correct.
Please note, you can correct VAT errors by adjusting the entry in Xero for errors where they are within the 4 year time limit and either:
1. The net VAT adjustment does not exceed £10,000; or
2. The errors are of a net value between £10,000 and £50,000 but do not exceed 1% of your Box 6 figure (net Outputs) on the VAT return for the period in which the errors are to be corrected.
This will get picked up on your next VAT return submission.
However, for errors where the VAT errors exceed £10,000 and 1% of your net Outputs for the relevant return period, you must notify HMRC by using an error correction form (VAT652).
