Farm tax tips for 31 March accounting year-end and beyond

With 31 March soon approaching, we speak to tax experts on understanding your tax liabilities when running a farm business and changes coming to the current tax regime.

See also: Budget highlights need for inheritance document housekeeping

Planning and forecasting

Many farming businesses have a 31 March year-end.

Setting aside time for year-end planning and profit forecasting before then will help with understanding future tax liabilities and cashflow demands, advises Peter Griffiths, tax director at accountant Hazlewoods.

“This helps not only in evaluating the past year’s performance but also in making business decisions, such as what machinery to buy to claim capital allowances,” he says.

By estimating accounting profit, an estimated taxable profit can be calculated and then the potential tax payable for the following January and July.  

“This gives the opportunity to consider the timing of sales of crops in store, expenditure, and whether pension contributions should be made before the year-end,” says Peter.

He recommends four steps for short-term planning:

• Review the past year – harvest performance, livestock productivity, operational efficiency
• Estimate activity for the period up to the year-end, including planned capital and revenue expenditure
• Consider the timing of capital purchases and the impact on cashflow and tax liabilities – should these be brought forward or delayed into the next financial year?
• Consider kit sales – if there is no capital allowance pool, the full sale price will increase the taxable profit.

Gifted land

Much farmland was gifted in the run up to the Budget and has been transferred since October’s inheritance tax relief cut.

In many instances this has involved parents gifting land to adult children but remaining in the farming partnership.

At accountant Hazlewoods, tax director Peter Griffiths points out that inheritance tax (IHT) rules known as “gift with reservation of benefit” (GWROB) mean that once a gift is given, the donor should not benefit from the asset unless a market rent is paid for the benefit.

Common examples include when a donor continues to live in a farmhouse they have given away and/or land being gifted, but the donor or donors continuing to take a profit share from the farm partnership business.

“A sum reflecting the value of a market rent must be paid so that the gift is not one that retains a benefit,” says Peter. “Partnership accounts need to reflect this.”

He gives the example of parents in a partnership with two adult children, where the partnership income profits are in four equal shares and the parents own the land, which they then give to the children.

The partnership continues to operate as before.

“The partnership accounts need to show a prior charge payable by the partnership to the adult children equal to a market rent for the land from which the parents continue to benefit as partners.

“This will be a sum equal to the rent for the gifted farmland,” says Peter.

For example, a £75,000 prior charge for land at £150/acre rent on a 500-acre gift should be deducted from the profits before profit shares are divided, with 25% due to each partner.

Tax changes for double cab pick-ups

From April 2025, most double-cab pick-ups (DCPU) will be treated as cars for tax purposes.

This means an increase in benefit in kind charges of many thousands of pounds a year for employees, and more Class 1A National Insurance contributions being payable by employers.

This will apply both to the use of the vehicle, based on its list price and carbon dioxide emissions, and fuel for private journeys, says accountant Saffery.

Transitional rules apply to DCPUs bought, ordered or leased before 6 April 2025, allowing businesses to rely on the previous treatment until either the disposal of the vehicle or the end of the lease, or 5 April 2029, whichever occurs soonest.

Reduced capital allowances will also apply for DCPUs from April.

However, transitional rules also apply here for expenditure incurred on DCPUs in contracts entered into before 1 April 2025 for corporation tax and 6 April 2025 for income tax.

Where the expenditure is incurred on or after those dates but before 1 October 2025, the old capital allowance treatment will apply.

Restrictions on capital allowances also apply to leased DCPUs with carbon dioxide emissions of more than 50g/km (in practice, virtually all DCPUs) and there are transitional rules here running to the same dates as above.

David Bussey, a partner with Saffery, says farming businesses can benefit from the transitional arrangements.

“For example, an employer orders a DCPU on 3 March 2025, but the vehicle isn’t available until 1 September 2025.

“As the pick-up was ordered before 6 April 2025, the previous rules continue to apply for benefit-in-kind purposes until the earlier of the vehicle’s disposal, lease expiry, or 5 April 2029.”

The rules for reclaiming VAT when buying a DCPU are unchanged.

Furnished holiday lets tax rules change

From 6 April 2025, the special tax rules for furnished holiday lets (FHL) are being abolished, meaning these ventures will be treated the same as other rental property businesses. 

Time is short, but some steps can still be taken to maximise FHL benefits, says David Bussey, a partner with accountant Saffery.

• Those able to complete sales before 6 April 2025 may be able to claim business asset disposal relief (BADR), securing a capital gains tax (CGT) rate of 10% instead of 24%.
• If you want to sell an FHL before 6 April 2025 but are unable to do so, and want to benefit from BADR, stop renting it out as an FHL before this date. There are then three years to complete the sale. Note that CGT on gains subject to BADR rises to 14% from 6 April 2025 and 18% from 6 April 2026.
• Check whether making an election to split the profits based on the ownership split, rather than the default 50/50, would be beneficial.
• Anti-forestalling rules prevent the use of unconditional contracts to obtain CGT reliefs under the pre-6 April 2025 FHL rules.

From 6 April 2025, brought-forward FHL losses will become normal UK or foreign property losses and so can be set against profits from other property income.