Plans on how to roll out a fairer tax system for UK farmers, to help boost their productivity, were published this week as part of the Budget in the consultation Income Tax: Extension of averaging period for farmers.
Farmers, agricultural financial advisers and farming organisations are being called on to make their views known on how best to implement new tax averaging plans for the industry.
The new system will come into force from April 2016 and see tax averaging extended from two to five years, helping our farmers better manage market volatility.
Environment Secretary Elizabeth Truss said:
Food and farming are cornerstones for our economy, contributing more than £100 billion a year. Our plans around tax averaging will help our farmers better plan for the future and invest to further improve their competitiveness.
We know it is important the tax system reflects the market realities that farmers face. Extended tax averaging will be particularly helpful for our world-leading dairy industry where we have seen recent global price volatility.
The consultation sets out two options:
Option A is based on the rules for the current two-year system with changes to deliver the extension to a five-year averaging period. The current “volatility test” would be retained (that is, farmers may only qualify for averaging if the difference between profits in a good year and a bad year is at least 70%). Farmers could decide each year if tax averaging would be beneficial to them.
Option B would significantly reduce the current qualifying conditions and provide automatic averaging for a fixed period of five years. There would be no requirement for an annual claim, but farmers would need to opt in for a full five years. There would be no volatility test.