Saturday, February 23, 2019

Move quickly to exploit tax window for farm machinery purchases

February 14, 2019 by  
Filed under Machinery

Farmers and contractors are being urged to take advantage of tax relief which could help their businesses grow – effectively benefitting from £1 in relief for every £1 spent.

The Annual Investment Allowance (AIA) allows expenditure on machinery purchases to be set against farm profits in the year it occurs – up to a maximum threshold. In 2018, the threshold was £200,000. It has now risen to £1m until 1 January, 2021 – when it reverts back to £200,000.

JCB finance managing director Paul Jennings, said: “This important tax incentive allows 100% tax relief in the first year and is designed to encourage farming businesses to invest in machinery, vehicles and a broad range of other assets.”

Tax advantage

Farm businesses looking to replace ageing and unreliable kit should consult with their accountant now to maximise any available tax relief, said Mr Jennings. Poor replacement planning could mean missing out on all the available tax relief, or even worse, paying more tax than is required.

“Depending on the business’ rate of tax, it is an open invitation to invest in machinery and secure the equivalent of a 19% to 45% subsidy,” said Mr Jennings.

“Better still – if you acquire the machinery via a hire purchase agreement the acquisition, for tax purposes, is treated as if cash had been paid – plus any interest payable is tax deductible too. However, your year end date impacts on the amount of relief available.

“Getting the timing and the amounts right is crucial to your business. We are already recommending to our customers that they speak to their accountant and to our JCB Finance team now, so they can plan the optimum time to take delivery of their machinery.”

Time-limited

The NFU said the government had gone some way to meet its call to encourage on-farm investment. It said it welcomed the decision to increase to the Annual Investment Allowance to £1m but was disappointed it was time-limited for two years.

By increasing the relief on qualifying expenditure up to a £1,000,000 limit, those farming businesses already spending up to the £200,000 threshold now have a considerable incentive to increase or bring forward their capital expenditure on machinery.

The maximum amounts available by showing four different company financial year ends are shown in the accompanying table – illustrating how vital it is to spend the right amount within the right periods in order to maximise tax benefits.

Given the lead times of some farm machinery from order to delivery, this also needs to be carefully factored in to buying plans.

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