Consider the timing of your machinery purchases

A routine review of tax planning opportunities for farmers will include a review of cashflow and the timing of planned machinery purchases. The capital allowances which are available on those machinery purchases may be significant and therefore valuable to the business, depending on the type of entity the business is and the rate at which capital allowances can be claimed. A discussion around timing and in which financial year any expenditure should be made so that the capital allowances can be offset against profits is often a key planning area as the farm business financial year end approaches.

Over recent years, for many eligible farm businesses, the introduction of an Annual Investment Allowance (AIA) of 100% on qualifying expenditure, up to £1m in 2021/22, has made decisions around the timing of qualifying expenditure even more critical.

Care must be taken, however, because in order for capital allowances, including AIA, to be claimed the business must be able to demonstrate that a contract has been signed for the purchase if payment is due within less than 4 months. Where hire purchase finance has been used, the rules are more stringent, and the business must be able to demonstrate that the item of machinery has been bought in to use. This may prove difficult either because of the seasonality of specific farm work being done (e.g. a combine harvester is unlikely to be used until late summer), or, in the current economic climate, the significant delays that are being experienced in the manufacture and delivery of equipment, especially from overseas.

If your financial year end is approaching and you would like to discuss planning around machinery purchases, please contact our EQ Agriculture team by via agriculture@eqaccountants.co.uk or call 01307 474274.