Investment allowance rise could benefit farmers, say tax advisers

PUBLISHED: 07:56 02 November 2018 | UPDATED: 07:56 02 November 2018

A combine harvester in action at South Raynham. Picture: Patrick Joice

A combine harvester in action at South Raynham. Picture: Patrick Joice

Patrick Joice

Financial advisers said increased investment allowances announced in this week’s Budget were good news for East Anglian farmers – but warned there were also pitfalls within the chancellor’s statement.

While the wholesale predicted tax increases did not materialise Philip Hammond appeared to present a number of giveaways, but Steve Dack, tax director at M+A Partners in Norwich, said: “However, what is given with one hand is often taken away with the other”.

One measure which was welcomed by the agricultural community was the increase in the Annual Investment Allowance – which gives tax relief for 100pc of the cost of plant and machinery in the year of purchase – from £200,000 to £1,000,000 per annum for two years from January 1, 2019.

“This will be particularly beneficial for many farmers as £200,000 does not go very far when purchasing the range of equipment needed on a farm,” said Mr Dack.

“The rates of capital allowances are usually an issue of timing, with relief effectively clawed back in respect of the proceeds when the asset is sold. So this feel-good measure is more about stimulating investment than providing additional tax relief.

“Some capital purchases fall into what is known as the ‘special rate’ pool. This includes cars with higher CO2 emissions, assets with an expected useful life of at least 25 years and ‘integral features’ – parts of a qualifying building such as the electrical and heating systems.

“From April 2019 the rate of allowance for these assets will be reduced from 8pc to 6pc. Items falling within the special rate pool can, with the exception of cars, qualify for the Annual Investment Allowance so the usual course of action is to utilise this against special rate items first before other plant and machinery.”

The chancellor also announced a new Structures and Buildings Allowance, to be given at 2pc per annum for non-residential buildings where the contract for construction was entered into on or after October 29.

“While this is welcome news, many farmers will remember the more generous 4pc Agricultural Buildings Allowance which was phased out between 2008 and 2011,” said Mr Dack.

Ryan Lincoln, partner at accouncy firm Lovewell Blake in Halesworth, said with the new investment allowance coming into effect on January 1, businesses considering investments in their current financial year need to plan carefully to take full advantage.

“The increased allowance doesn’t mean that every business will suddenly be free to spend £1m on day one,” he said. “For example, a farm with an accounting year other than December which therefore spans the rate change will fall into the transitional rules.

“So if they are planning a big investment, the timing of this is critical to maximise the relief on the initial expenditure. They might be better off delaying the acquisition, when they will have the full £1m available.”


The National Farmers’ Union said the Budget contained some welcome measures for farmers who are still seeking assurances about their financial future after Brexit.

NFU president Minette Batter said: “The new Structures and Buildings Allowance for non-residential structures has gone some way to meet our call for tax relief on investment in farm infrastructure and will help farmers invest in modern, efficient buildings.

“The NFU also welcomes the increase to the Annual Investment Allowance to £1m but we are disappointed it is time-limited for two years.

“We are pleased to see there is a significant £200m investment in piloting new solutions to deploy full fibre internet in rural locations. It is vital that this is not a one-off investment and it must be part of a continued effort to deliver better connectivity for all rural businesses.

Tim Price, rural affairs specialist at insurer NFU Mutual, added: “At first glance, there was not a lot for farmers to get excited about – but there are a few measures which will ease tax bills – and it’s a huge relief that the chancellor avoided increases in duty on petrol and diesel which would have hit country people very hard.”

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