Recent global price fluctuations have been making life particularly tough for livestock and dairy farmers. During the last budget, the Government outlined plans to extend the period that self-employed farmers can average their profits for income tax purposes from 2 to 5 years.

This averaging extension will merge years with a higher rate profit with years where profits may have dipped. This could reduce the amount of tax payable and make a significant difference to cash flow issues around July and January when tax has to be paid.

DEFRA secretary, Liz Truss said “Plans around tax averaging will help our farmers plan better for the future and invest to further improve their competitiveness. Extended tax averaging will be particularly helpful for our world leading dairy industry where we have seen recent global price volatility”.

Two options have been outlined for consideration.

HMRC has published a consultation document that outlines two options for the implementation of the new regime, which should come into effect from April 2016.

The first would be based on the current rules with modifications to deliver the extension to a 5-year averaging period, with some simplification. This would involve annual claims for averaging relief, annual volatility tests, no marginal reliefs and transitional averaging for newer businesses.

The second option would be to significantly reduce the qualifying conditions and provide automatic averaging for a fixed period. The reduced conditions of this second option are that there would be no need for the annual volatility test and annual claims, however would include an irrecoverable opt in election for 5 years. Transitional averaging for newer businesses would remain.

Will Robinson, Agricultural Adviser at Saint & Co. Chartered Accountants said: “Income tax payable, sometimes many months after a profitable accounting year, can be a burden on many farmers, particularly where the subsequent year is perhaps not as profitable, and cash flow may be an issue. The increase in the farmers averaging period from 2 to 5 years will no doubt see benefits for many unincorporated farming businesses once introduced next year”.

He added: “We have a specialist agricultural team on hand to answer any questions on how the new reforms may affect self-employed farmers. If you feel that a free no obligation chat about your business may be of benefit, then please get in touch.”

Farmers and professionals invited to add their views to the new reforms

In the consultation document published following the budget, farmers and professionals are being urged to add their views to the new reforms. The closing date for comments to HMRC on this is 7 September 2015.

For additional information, please contact Will Robinson on 01228 534371 or email