Tax Savings For Farmers
Farm profits can fluctuate wildly from year to year due to many uncontrollable factors, from the weather to world commodity markets. This means that in one year you may have a very high tax bill, and in another nothing to pay. In order to smooth this out, you can make a Farmers’ Averaging Election to average the current year’s profit with the previous year. Used correctly, these Elections can substantially reduce your tax bill and improve cash flow.
Profits from two consecutive years can be averaged if the profit from one year is less than 70% of the profit of the other year. The adjustment results in each year’s taxable profit being half the total of both years. For example:-
- Year ended 31 March 2012 taxable profits are £20,000
- Year ended 31 March 2013 taxable profits are £50,000
We would elect to average your profits so that you would pay tax based on the average profit of £35,000 in each year. This could save up to £1,950 tax in this case.
The relief is available to Sole Traders and Partnerships but not Limited Companies.
In the last 6 months alone, we have managed to save our clients over £61,000 by making Farmers’ Averaging Elections.
If you have any queries regarding Farmers’ Averaging, please contact us on 01633 871122.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.