Cows & Money – Budget 2018

Did Fiscal Phil fire the starting gun on dairy expansion?

Somewhat against expectations, although lobbied for by NFU and CBI, the Chancellor yesterday announced significant improvements to the capital allowances regime. This certainly creates a different environment ahead of Brexit, something I’ll have to take into account in my upcoming slot at the RABDF policy conference.

Annual Investment Allowances changes

The most eye watering of these, costing the chancellor £1 billion, is the increasing of expenditure qualifying for Annual Investment Allowance from £200,000 to £1,000,000 with effect from 1st January 2019. This will run for two calendar years when it will fall, presumably (though not certainly) back to £200,000.

For those with December year ends, the sums are straightforward; in the next two calendar years you can spend up to £1 million on plant and machinery and get a full 100% deduction for the expense against your taxable profits. So investment in parlours, silage pits, slurry handling, cubicles and even robots could make a significant dint in this figure.

Unfortunately for those with year ends which are non coterminous with the AIA period things become a little more complicated!

If we imagine someone with a 31 March year end we can see in the table below that they are entitled to part of the pre 1 Jan 2019 allowance of £200,000 and to part of the post 1 Jan 2019 allowance.

Table 1.  Apportionment of allowance

The above shows how the two AIA periods straddle the accounting year, represented by the red and blue lines. In this case the allowances are apportioned on a time basis, so ¾ of the £200,000, (purple line) allowance is available (i.e. £150,000) and ¼ of the £1,000,000 (orange line) (i.e £250,000). This means that in the year ending 31 March 2019 the business is entitled to £400,000 of AIA in total.

Businesses that have already incurred expenditure of more than the appropriate pro-rated amount in the first period up to 31 December (e.g. £150,000 in the example above), but less than £200,000, will still be able to claim AIAs on spend up to £200,000 in the first period.

However, be warned that the maximum amount of spend in that first period to 31 December 2018 can only be £200,000; you cannot “borrow” from the higher amount of allowances from 1 Jan 2019 to cover any spend over and above the £200k pre 1 Jan 2019 limit.  To give an example, if company A has a 31 March year end, and spends £300,000 up to 31 December 2018 and £100,000 between 1 Jan 2019 and 31 March 2019, it has spent £400,000 overall.  However, it can only claim AIAs of £300,000; being £200,000 relating to the pre 1 Jan 2019 period and £100,000 for the post 1 Jan 2019 period. This is a real bear trap to watch out for.

Conversely, any unspent relief from the first period can be utilised in the final three months effectively creating up to £400,000 of relief available in the final quarter.

For those that are looking at large tax bills based on 2017/18 figures there will be an opportunity via use of tax losses and averaging to reclaim some of the tax being paid over the next few months, which might be attractive where businesses are paying high rate tax.

Structures and Buildings Allowances

The other welcome announcement was the introduction of Structures and Buildings Allowance, SBA. This essentially replicates the old Agricultural Buildings Allowance, although isn’t as attractive as it only provides relief at 2% per year for 50 years. Assuming its lasts the full 50 years, (ABA’s never ran their full course!), then businesses will receive full relief on the costs of buildings and structures.

The relief is for the cost of new buildings, so doesn’t cover the purchase of buildings existing on 29 October 2018. It also doesn’t cover planning costs and the cost of the underlying land, although these should be relatively low for agricultural purposes.

For dairy businesses these are likely to be sheds to house parlours or cows, but also structures such as reservoirs and underpasses which will be a welcome boost, albeit small. After all, your grandchildren could still be benefitting from tax relief on sheds you build today!

VAT groups

An announcement that didn’t receive the Chancellor’s endorsement in the Commons was the extension of VAT groups to non corporate bodies, such as partnerships and individuals. For those people running multiple businesses the extension of VAT groups could add simplicity to existing procedures, although it is likely that at least one corporate member will be required in any VAT group.

Restrictions to Principal Private Residence Relief

The reduction from 18 months to 9 in the relief for final ownership of property, coupled with the restriction of lettings relief proposed to come in in April 2020, will expose more house transactions to Capital Gains Tax. With a tax charge on these gains of 28%, losing this relief might impact farming families where several houses are owned, often in convoluted ownership!

The next eighteen months might provide an opportunity to straighten out property ownership whilst the reliefs are still here to minimise any tax charges.

If you have any queries on how any of the above will affect you please contact Rob Hitch on 01228 530913, email him at or tweet him @rob__hitch 

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