Moving the Goalposts

If, like most livestock farmers, you prepare your accounts to 31 March, please ignore this article. 

BUT if your sole trade or partnership uses a different date (and 30 September is a popular choice for arable farms), please read on…

Existing position

Existing rules tax the profit of the accounts year that ends within the tax year. In other words, the profit of an accounts year to 30 September 2022 will be taxed in 2022/23.

Proposal 

Government have indicated that, from 2024, the actual profit of the tax year (i.e. year to 31 March or 5 April) will be taxed. As a transitional measure, you will be taxed in 2023/24 on the profit of your traditional accounts period plus the profit between then and 31 March 2024. This, in the 2023/24 tact year: 

• Farmers with a 30 September year end will be taxed on 18 months’ profit (i.e. 1 October 2022 to 31 March 2024). 

• Farmers with a 30 April year end will be taxed on 23 months’ profit (i.e. 1 May 2024).

For some farmers this change could mean considerable extra taxable profit recognised in 2023/24, although any overlap relief will be deductible, and Government envisage allowing some of the 2023/24 profit to be carried forward and the tax paid over several years. Implications for tax rate thresholds, tax credit, high income child benefit charge etc. have yet to be determined. 

There has been considerable opposition to this proposal and Government have already postponed the transition date by one year. They are publicly committed to proceeding according to the timetable shown above, but this change is not yet certain. 

Planning

Affected farmers might consider making extra pension contributions or timing major tax-allowable business expenditures in 2023/24 to keep down that year’s taxable profit (assuming 2023/24 remains the transitional year).

From a practical perspective, most affected farmers will need to change their accounting date to 31 March (by 2024).

If you have a major dip in tax-adjusted profit before then (perhaps because of plant/machinery expenditure), we should consider moving sooner to a 31 March accounts date. Moving sooner would sacrifice the proposed spreading relief but, with heavier costs and no Basic Payment Scheme income to recognise over the winter, some beef/sheep farms might show less profit for 15 months to March than for 12 months to December, although this will depend on the timing of livestock sales. 

Changing to a March year end will make it necessary to complete your accounts sooner after the year end. 

Please speak to us if you would like to discuss the implications for your farm.