Farming News - Clock ticking for farmers to reap the benefits of uprated Annual Investment Allowance

Clock ticking for farmers to reap the benefits of uprated Annual Investment Allowance

14 Sep 2020
Frontdesk / Finance

Farming operations should look at bringing forward any planned expenditure on plant and machinery to reap the benefits of enhanced tax relief which deadlines at the end of the year. 

For the North-east's important agriculture sector, the generous Annual Investment Allowance (AIA) tax relief introduced in 2018 could create a significant incentive to make fresh injections of capital. 

With the clock now ticking down to the final months of the enhanced AIA, it's important for farmers to audit machinery and vehicles, and look at replacing items that would benefit from the preferential rate of relief. 

Derek Mair, a partner at Aberdeen-based independent accountancy firm Hall Morrice, said that investment with this measure of tax relief help could deliver meaningful change to operators, so they should grab it while it is available. 

He said: "Because the enhanced Annual Investment Allowance is only a temporary increase, agricultural operators really need to be taking stock just now to look at how they could be maximising relief by bringing forward expenditure. 

"Farmers have until 1 January 2021 to take advantage of current AIA aimed at helping businesses invest and grow by providing £1 tax relief for every £1 spent. 

"So if they are thinking of incurring large items of capital expenditure for the business over the coming months, it's important to ensure that any purchase is properly timed to take full advantage of the temporary increase in the AIA limit ahead of the deadline." 

AIA provides 100% tax relief on agricultural equipment expenditure - enabling many farming businesses to reduce their taxable profits by the full amount of their annual capital investment. 

AIA may be claimed by farmers operating as sole traders, in partnerships and through companies. 

To qualify, expenditure must fall within the definition of ‘plant and machinery' for capital allowance purposes. 

This would cover farming equipment such as combines, tractors, and other farm machinery but it also could include laptops and other office equipment, vans, and lorries. However, the AIA does not apply to purchases of cars. 

Derek continues: "Quite simply, enhanced AIA is the most valuable way to offset the cost of plant and machinery against a business's profits. 

"It gives businesses 100% relief in the period of the addition for plant and machinery and other qualifying expenditure up to a certain limit. 

"Farm owners should ask themselves if their business is maximising this tax-free advantage. They should speak to their accountant to ensure they get the timing of purchases right to ensure they maximise the available tax savings." 

Hall Morrice has helped many farming families with diversification, growth, or succession planning, including tax-efficient strategies to help operations be tax-efficient and compliant. 

For more information on AIA visit https://www.gov.uk/capital-allowances/annual-investment-allowance