Many farmgate prices are in a much better position than they were in 2019 and this will lead to some businesses facing large tax liabilities in 2021.
With future subsidy levels being unknown, is now the right time to replace aging equipment and place your business on a forward footing?
While it is never a good idea to buy unnecessary equipment, there will be tax advantages to those who need to update.
The government recently extended the temporary increase of the Annual Investment Allowance (AIA) until January 1 2022.
It had been due to revert to £200,000 at the end of 2020, but will remain at £1 million for a year to help stimulate investment.
The AIA provides 100% tax relief on qualifying capital expenditure up to £1m in the year of purchase which can be used to invest in plant and machinery.
It can potentially also be claimed on the construction of certain types of agricultural buildings, such as a temporary grain store.
It would be beneficial to consider effective tax planning for next year in order to maximise the full tax relief available before the limit is reduced and perhaps when there is additional pressure on cashflow.
However, businesses with a year end that straddles December 31 2021 should be aware that transitional rules apply.
If any expenditure is incurred in the period falling on or after January 1 2022, once the AIA has reverted to £200,000, there will be a cap on the amount that can be claimed. This can result in missing out on vital tax relief, so it is important that the timing of any capital expenditure is calculated in advance.
It is worth noting that hire purchase can also be used to acquire assets, allowing the cost to be spread over several years but the same tax relief is available.
With certain investments requiring planning permission, getting the timing right is critical as getting it wrong even by a day could prove costly.
Any qualifying spend not covered by the AIA will be subject to writing down allowances at either 6% or 18% or the structures and buildings allowance of 2% (increasing to 3% from April 1 2021).
Robert Young is a partner at EQ Chartered Accountants.