The Budget introduced additional tax relief for farming companies investing in movable plant and machinery after 31 March 2021. The new relief allows an enhanced 130% deduction for expenditure incurred between 1 April 2021 and 31 March 2023. Therefore, if you are considering investing in new plant or equipment, such as a new tractor and planning expenditure before 31 March 2021, it is likely to be more tax efficient to delay the purchase until after 31 March 2021. For example, if a tractor is purchased after 31 March 2021 costing £100,000, capital allowances will be available on an enhanced figure of £130,000, which at the current rate of corporation tax of 19% will get an additional tax reduction of £5,700.
It is worth reviewing any planned expenditure to fully understand the impact on your farming business as, depending on your company’s accounting year end, the delay in purchase may impact cashflow by delaying tax relief for a full 12 months.
Where companies meet the qualifying criteria for annual investment allowance (AIA) for capital allowances, the current limit for immediate tax relief on 100% of expenditure in a year is £1 million and is available until 31 December 2021.
The Budget also introduced an extended loss carry back period for companies, from one year to three years.
With careful planning, companies may be in a position to increase capital expenditure before 31 December 2021 to take advantage of the enhanced 130% relief and utilise the AIA £1 million limit, potentially creating a tax loss. Using the new loss carry back extension, the company could secure a substantial tax refund covering up to tax paid in the previous three years.
If you would like to discuss planning opportunities around capital expenditure and losses, please contact Peter Griffiths on 01242 680000.