No furrowed brows for farmers following Budget

24 March 2014

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Dawn Macdougall, senior tax manager, EY Inverness:

A Budget of 34 tax measures included just one specifically aimed at the farming community. The new agricultural subsidy Basic Payment Scheme, which replaces the Single Payment scheme, will be included within the classes of assets eligible for business asset roll-over relief.

The measure ensures farmers and companies carrying on a farming business that dispose of or acquire the new payment entitlements are not disadvantaged by the changes to the European Union’s agricultural subsidy scheme.

Bad news for farming partnerships with a corporate partner came in the shape of legislation that will see profit sharing arrangements being over-ridden from 6 April 2014 so that the individual members are taxed on profits that have been diverted to the company.

Previously undistributed profits were allocated to the corporate partner and taxed at corporate rates instead of the higher income tax rates.

These measures will have a direct impact on farmers, but there are a number of more general measures that they should be aware of.

For farmers with investments, a major change in the taxation of savings means the first £5,000 of income will be taxed at 0% with effect from 1 April 2015. This is only available to those who have earned income of less than £15,500 – a common situation for farmers whose continued investment in the business has left them with a modest profit.

The annual Individual Savings Account (ISA) subscription in cash or stocks will also increase to £15,000 from 1 July 2014, providing tax free income for farmers with such investments. The changes to personal allowances and savings rates could result in a low personal tax bill.

Farmers should also benefit from changes to employment tax. From 6 April 2015, every employer with employees under the age of 21 will no longer be required to pay National Insurance Contributions (NIC) for those employees.

This is in addition to the employment allowance announced in the 2013 Budget allowing businesses and charities to reduce their Class 1 NIC bill by up to £2000 per year from April 2014.

Annual investment allowance increases to £500,000 from £250,000 between April 2014 and December 2015 for companies and unincorporated businesses. This effectively means that expenditure up to £500,000 per year on assets qualifying for capital allowances will receive 100% tax relief in the year of purchase.

While the increase is unlikely to improve the benefit to farmers whose annual capital expenditure was covered by the existing £250,000, the increase is welcome news as previous government announcements suggested that the allowance may have decreased from 1 January 2015.

The personal allowance will increase to £10,000 from 6 April 2014, as previously announced. Legislation will also come into effect in 2015/16 allowing a spouse or civil partner to transfer 10% of their unused personal allowance to their spouse or civil partner where neither are higher rate tax payers.

Further announcements that are bound to find favour among the community include the cancellation of the planned increase on fuel duty and the duty freeze on whisky and some ciders.