Farmer Averaging Rules

Announced in the March 2015 budget and brought into effect from April 2016, farmers have been given greater flexibility with an extension to the two-year farmers averaging rules. The new rules that allow farmers the option to average profits over five years will run alongside the existing two-year averaging system. With farmer’s profits often affected by uncontrollable external factors like the weather, a year of high profits can often be followed by a year of losses. It is hoped that the new option will increase tax planning abilities in these situations.

The relief is also available to market gardeners and the term ‘farming’ includes the intensive rearing of livestock or fish on a commercial basis for the production of food for human consumption.

The general rules will still stay the same where relief is only available to sole traders and partnership. It is not available to companies or those using the cash basis and calculations are done on an individual basis. This means calculations should be on individual partners rather than the partnership as a whole. Claims cannot be made in the year of commencement or cessation and losses will still be treated as NIL profits.

To claim relief over five years a ‘volatility condition’ still needs to be met, this is done retrospectively. The original two-year rules gave full relief if the profits of one year were 70% or less than the other and marginal relief where profits were between 70% and 75%.

The ‘volatility condition’ requires the four previous year’s profits to be averaged and compared to the current claim year profits tadalafil over the counter. If one profit is 75% or less than the other a claim can be made, marginal relief no longer applies.

Five-year averaging will require an increase in time-consuming and complicated calculations, however, may not lead to greater tax savings. It is believed there will need to be large fluctuations in profits for the new five-year rules to be beneficial. Averaging will need to be carefully considered especially with possible changes to subsidies and support following Britain’s exit from the EU.

If Cheadles Chartered Accountants in Stafford can be of assistance with any of the above please call on 01785 254550