Agricultural businesses need to carefully consider their investment options after the Spring Budget introduced several significant tax changes, accountant Old Mill has advised.
Catherine Vickery, associate director at Old Mill, explained that whilst the Spring Budget on 3 March introduced a lot of new attractive-looking legislation for farmers to take on board, they should be taking a cautious approach, calling the new tax super-deducation “smoke and mirrors”.
Instead, she has advised those who have a five-year investment plan of over £1m per annum – the Annual Investment Allowance (AIA) cap – should consider bringing it forward to take advantage of the super-deduction which runs from 1 April 2021 to 31 March 2023, as it has no spend cap. Anyone planning to buy something imminently should hold off until after 31 March 2021 to qualify.
She warned that the increase in corporation tax from 19% to 25% in April 2023 is going to be a shock for many companies: “It looks to be only 6p more in every £1, but it’s an increase of over 30%, so if you had a £100,000 tax liability, it will now be over £130,000. When you deduct that extra money from your profits, it’s that much less to pay off debt or draw out of the business.
“The Government wants businesses to be thriving and producing profits ready for this change – which highlights just how much corporation tax is going up.”
Ms Vickery explained that the increase in corporation tax means any benefits from the super-deduction could be nullified, especially for those investing less than £1m and that anyone with investments below £1m should shtick to their current plan: “The 130% super deduction, combined with the current corporation tax of 19%, means that for every £100,000 you spend, you get £24,700 back in tax reductions.”
She added that companies need to bear in mind what assets are being purchased as this is a factor: “Some special rate assets, like solar installations, could cost well above the £1million AIA threshold. Here, there’s an argument to bring the spend forward as they get an annual writing down allowance of 8%. The investment also qualifies for the AIA and is eligible for a 50% first-year allowance under the new super-deduction.
“Just remember not to look at the situation solely from a tax perspective – though it’s important, it’s not nearly as important as making the right investment decision to boost the profitability of your business.”