Farmers Averaging Claims – An Update

In our August 2015 Newsletter we provided details of HM Revenue and Customs’ (HMRC) proposal to extend the farmers averaging period from two to five years. HMRC published a consultation document asking interested parties for feedback.
The consultation period has now closed and a summary of responses has been issued, which HMRC has summarised as follows:
‘The key messages that have emerged from the responses to the consultation is that the current two-year averaging regime delivers significant relief and is well understood and that an extension must balance providing more flexibility to achieve the best outcome for farmers with simplicity of approach to keep costs down and encourage use. We have listened to the views expressed and have decided that simply replacing the two-year averaging regime with a five-year regime will not strike the right balance. We will therefore retain the two-year averaging regime but in addition will also provide an alternative for farmers to choose to average over five years.’
We would consider this a very sensible approach to take. Extending the averaging period to five years will undoubtedly result in greater tax savings for farmers in some circumstances however, having to recalculate each individual’s income tax liabilities for five years every time averaging is considered would certainly cost more in professional fees than the current two years.
Retaining the two year regime and also providing an option to average over five years should provide advisors with the opportunity to assess each claim on its merits and balance the cost to the farmer of submitting a claim with the potential tax savings available over both two and five years.
The new proposals are due to be implemented from 6 April 2016 and draft legislation has now been published for technical consultation.

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