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.
The content of this article is for general information only and does not constitute tax advice. It should not be relied upon and action which could affect your business should not be taken without appropriate professional advice.
Kate Bell (née Bailey) BA(Hons) ACA
Kate joined Evolution ABS in March 2016 having moved from another South West based firm where she was Senior Manager of their Agricultural team. Kate was appointed director in May 2018 and specialises in more than accountancy and tax, offering proactive business planning and advice to a range of rural entities.
Kate holds a number of other voluntary positions including Treasurer of Somerset YFC, Secretary of the Somerset branch of the Centre of Management in Agriculture and committee member of the Somerset and Dorset Branch of the Agricultural Law Association, just to name a few!
Kate loves nothing more than to spend her weekends helping on her husband's farm but since joining the team has been converted to cycling as well!