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2016/17 Tax Season - What we learned, and what's ahead

In the tax year to 5 April 2017 many did not feel cash rich and profits were down on the previous year. However, many business’s taxable profits actually increased because they held back on capital expenditure whilst cash was tight, which reduced capital allowances compared to the previous year.

This year we were able to use 2 and 5 year averaging which allowed many to have an increased taxable profit but not an increased tax liability by utilising unused tax-free personal allowance and basic rate bands from previous years. This also reduced the payments on account due for 2018/19, assisting with overall cash flow in January 2018.

Although averaging has been beneficial by reducing one off inflated taxable profits, in order for it to be available again the difference between this year’s taxable profit and the averaged profits from the previous years needs to be 25% and so it may not be available for everyone next year. We are expecting to see larger taxable profits again this year as a result of the improved milk price for much of the year and capital expenditure still being held in check. With the reduced likelihood of averaging being so beneficial this year and with payments on account towards the 17-18 tax liabilities being modest it is likely to lead to larger tax payments due in January 2019 and you should look at this now.

If you are planning repairs, capital expenditure or pension contributions within a short period of your year-end then try to get the expenditure done before the year-end so that you get your tax relief a year earlier. If none is planned or practical, then get your accounts done as early as possible so that you know what your tax liability is likely to be in January 2019 and can plan for it.

For some, the increase in taxable profit will be a welcome relief with farmers’ 5 years losses rules that require a taxable profit every 6 years to allow losses to be used against other income (e.g. rents) rather than being carried forward against the next available farming profit. This year could be the year to restart the 5 year clock.

Written by Kate Bailey BA(Hons) ACA


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