As confidence rises – so too does reinvestment!

A consistent theme for client meetings over the summer seems to be one of renewed confidence and positivity in the industry. Despite having to discuss some rather poor looking accounts for the year ended 31 March 2017, prices have been steadily improving since the year end.


Sheep prices have remained strong so far this year (certainly at the time of writing), looking to build on the improvement seen in 2016.

We have also seen a return in the milk price back up to 28ppl or so, pushing dairy businesses back into a good profit and positive cash flow position; and helping to put a bit of fat back in the business after several tough years in the sector.

The pound has stayed weak since the Brexit vote in 2016 and has helped push up the sterling value of the Basic Payments Scheme payments received by farmers. In fact, much of the uncertainty over Brexit and what Michael Gove might bring to the industry has been put to the back of farmers’ minds as they get on with the day to day running of their businesses.

The only thing that seems to be missing is some good summer weather!

As a result I have been increasingly asked about the tax relief associated with reinvestment and thought it was worth a quick recap on the tax allowances on plant and machinery and buildings; the two areas most discussed.

For those looking to invest in farm plant and machinery there is the opportunity to achieve accelerated tax relief on new purchases under the Annual Investment Allowance (AIA). The AIA allows 100% of the cost of new machinery to be set against your businesses taxable profits in the year in which they are purchased with a limit of £200,000.

The big impact of the AIA is that of the businesses cash flow. Given that big tax savings can be made in the year of purchase it can significantly reduce your tax liability for the year as well as any payments on account.

While you would never purchase machinery with the sole purpose of reducing tax the impact on tax means it is important to consider the timing of purchases. For those with a year end of 5 April, if you are considering changing your tractor in the spring then you should consider whether you buy the tractor before or after your year end in order to match profits with the tax allowances available. Given the importance of the AIA to farming business we would always recommend speaking to your accountants before making your purchase.

But what about the tax relief available on buildings? H M Revenue & Customs treat buildings in the polar opposite way to machinery. Buildings receive no income tax relief which can be difficult to stomach when you consider the cost of a new shed!

It is therefore vital to really consider exactly what is being built when a shed goes up on a farm in order to strip out any items that will qualify for income tax relief.

Firstly, the electrical work and plumbing that goes into a new shed are designated as integral features and are specifically allowable for income tax relief.

On top of this, HMRC specifically identify assets for slurry handling and feed handling as being plant and machinery, and can therefore qualify for 100% income tax relief. In reality this could include a large portion of the cost of a new shed when you consider feed passage ways, feed troughs, slatted floors, underfloor slurry tanks and even much of the concreting.

With due care a significant portion of the shed will qualify for income tax relief, helping to keep tax liabilities to a minimum in years where the business already has significant cash outlay on reinvestment. It is important that the invoices you receive demonstrate just what has been built on the farm. From a tax perspective there is nothing worse than an invoice for £80,000 that simply says “New shed”!

But how does this apply if you are buying a farm that already has sheds and infrastructure in place? It often comes as a surprise to farmers but capital allowances claims and income tax savings can be made when buying new farms. Typical examples are slurry lagoons or silage clamps as structures on a purchased farm that qualify for capital allowances.

Again, as with new buildings the paperwork is important. The purchaser and the vendor of the farm need to agree a valuation for these assets at the point of sale. There is the opportunity in a year where there is a large cash outlay to at least capitalise on a large slice of income tax saving where perhaps it was not expected!

If in doubt – you should always speak to your accountant or tax adviser. If you would like to discuss any of the content in the above article please contact Andrew Sims on 01228 530913.

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