Farming Average Claims – New Proposals

HMRC have published a 26 page consultation document detailing the extension of the averaging period to 5 years. The document puts forward 2 options for how the proposed change could be implemented. Interested parties are asked for their feedback and have until 7 September 2015 to respond.
The Basics

  • Will apply from 2016/17 therefore first extended period will be 2012/13 to 2016/17
  • Will always be a period of 5 consecutive years – or max eligible years for new trades/partners
  • Profits averaged evenly over the eligible period

Option A – Building on the Current Framework

  • Annual claims still required
  • 70% volatility test retained – between current year and average of previous 4 years
  • Volatility test met automatically if trading loss incurred in any of the 5 years
  • No marginal relief (70%-75%)

Option B – Developing a new Framework

  • No requirement for a volatility test
  • No annual claims
  • Irrevocable opt in election for the next 5 years*

*Example: Farmer opts in to average 2016/17 with the previous 4 years. He must then average 2017/18 to 2020/21 with the previous 4 years. 2021/22 taxable profit not averaged unless a new 5 year opt in election is submitted.
The new proposals put forward by HMRC are definitely a welcome change for farmers, who’s profits can vary significantly from year to year due to external factors outside their control. Extending the averaging period from 2 to 5 years should further help to ensure that allowances are utilised, higher rates of tax minimised and tax liabilities reduced as a result.
Further information will be revealed when the final legislation is published following the consultation period.

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