The current increase in commodity prices has been very useful for arable farms although not such good news for those with livestock. Feed costs this winter will mean some livestock farms could well make trading losses. Fertiliser and fuel costs are also on the increase and therefore margins will be squeezed again next year.
Tax relief is available for spending on repairs and there will be a number of repairs carried out to buildings, roads and drainage this year as some of these have not had any money spent on them for a long time. Capital expenditure on machinery re-investment should not be undertaken just for tax reasons. Every business should have a ten year capital expenditure replacement plan. The rule of thumb is you should spend your depreciation each year in terms of capital net of trade ins. However if there has been under spend in previous years then this year could be the time to spend more than your budget.
The other main tax deductible cost that can be utilised this year is paying into pensions. Anyone approaching paying the higher rate of tax should make a top up to their pension plan to obtain tax relief. Pension rules are changing again next year and there may be scope to carry back contributions. I would urge every arable farmer to review their pensions and contact us if they would like to have a review.
There may be larger tax bills to pay in January 2012 and 2013 due to the higher arable profits but there should also be some cash surplus left in the business after tax. This can be used for debt repayment or even increasing drawings. I find that many clients are still paying themselves the same monthly amount they were ten years ago. You may want to take the opportunity now to increase this.
If you have any questions contact Mark Chatterton on 01636 640321
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