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Tax Options for Farmers Facing Cashflow Problems

Joint News Release on Behalf of NFU Scotland and Johnston Carmichael

Guidance issued ahead of 31 January deadline

With the 31 January tax payment deadline fast approaching, Johnston Carmichael – who operate NFU Scotland’s Taxation Advice Helpline – has reminded farmers of some options available to them.

The guidance recognises that many farmers may be experiencing cash flow pressures given recent adverse weather conditions, fluctuating market prices and the delay in Scottish Government distributing support payments under the new Basic Payment Scheme (BPS).

Although Cabinet Secretary Richard Lochhead has stated that the majority of farmers and crofters will receive their 70 percent part payment for BPS by the end of this month, with tax payments due by 31 January, this could still be cutting it fine for farmers to get their tax payments in on time.

Tax Partner at Johnston Carmichael, Alex Docherty said: “For farmers experiencing cash flow issues, there are a number of options available to them to help reduce the tax burden or, in certain cases, defer payment to a later time.

“These include making use of HMRC’s ‘time to pay’ policy, which allows the taxpayer to clear any tax arrears in instalments.  If that is an option then farmers, or their advisor, must get in touch with HMRC ahead of the 31 January deadline and put a payment plan in place.

“Where appropriate farmers can also look to reduce payments on account towards the next year’s tax where profits are now likely to be substantially reduced. Each payment on account for a tax year is normally equal to half of the net income tax liability of the previous tax year.

 “Indeed, if the profits have fallen significantly enough then the payments on account automatically calculated as coming due can be reduced to nil.

“Thirdly, averaging enables farmers to lessen the effect of high tax rates in a successful year when preceded or followed by a more difficult trading year. If profits in the current or preceding accounting period are at least 25% down, then some form of averaging over the two years should be available.”  

Notes to Editors

  • Time to Pay initiative
    HMRC operate a ‘time to pay’ policy if a taxpayer is unable to pay a tax debt that is due. The initiative operates by giving the taxpayer the opportunity to clear any tax arrears by way of instalments rather than HMRC issuing recovery proceedings to obtain the tax in full once the 31 January deadline has passed.

    The initiative is likely to be made available to taxpayers who have not previously been late with payments, however due to the current issues being faced in the agricultural sector HMRC may take a more lenient approach, although no formal assurances have been received by HMRC at this time.

    If a time to pay arrangement is entered into then whilst interest will apply to late payments (currently 3% per annum) no additional penalties will be imposed. For farmers who are likely to have made a trading loss in the current year, these losses can be taken into account when agreeing the level of payments to be made.

    Additional support is also available from the Business Payment Support Service Unit contactable on 0300 200 3835, or through the HM Revenue & Customs website. It is vital taxpayers make contact with HMRC either personally or via their advisor prior to the payment deadline of 31 January in order to get a payment plan in place if necessary.

    If members are facing cash flow difficulties at this time then they should speak to their tax advisor or call the HMRC Business Payment Support Service before the 31 January due date, and make a ‘time to pay arrangement’. Those facing cash flow problems may be able to pay in instalments and protect themselves against late penalty charges and the threat of recovery proceedings being issued.

    If cash flow is going to be resolved relatively swiftly, for example once the BPS support payments are issued, then the next key tax payment date for those who do not wish to agree instalment payments with HMRC or those members who HMRC will not grant instalment payments to, is the 28 February 2016. Any tax outstanding on this date will see a surcharge applied to it of 5%, therefore it is vital payments are made before this date or alternatively a payment plan is agreed with HMRC.Reduction to payments on account
     
  • Reduction to payments on account

    Where appropriate farmers can also look to reduce payments on account towards the next year’s tax where profits are now likely to be substantially reduced. Each payment on account for a tax year is normally equal to half of the net income tax liability of the previous tax year. Indeed if the profits have fallen significantly enough then the payments on account automatically calculated as coming due can be reduced to nil.

    If a taxpayer reduces their payments on account by more than they should have been, interest will be applied in due course (currently at 3% per annum) on the shortfall from each payment date and a penalty could possibly also be imposed.

    Farmers should review their position and speak to their tax advisor to ascertain if profits are down on the prior year, where applicable, HMRC should then be notified of the reduced payments on account now due and this will assist the farmers’ cash flow position.
     
  • Farmers averaging

    Famers averaging enables farmers to lessen the effect of high tax rates in a successful year when preceded or followed by a more difficult trading year. If profits in the current or preceding accounting period are at least 25% down, then some form of averaging over the two years should be available. This can help to iron out significant fluctuations in tax liabilities were a farmer due to market forces may find themselves paying 40% of 45% tax in one year and no tax in another year, there could be an opportunity to average over the two years and pay 20% tax for example in each year.

    This could be one option for farmers to consider in reducing their balancing payment coming due by 31 January 2016.

    With effect from April 2016, farmers will also have the ability to average profits over five years for tax purposes rather than two years which will provide some much needed relief to farmers who as a result of recent trading conditions may see a significant decrease in their profits for the year.

    Whilst farmers await an update on their BPS support payments, there are a number of ways to help smooth out the tax payments coming due, however it is important that action is taken before the tax payment due date.
     
  • If you need further assistance please contact your usual tax advisor.  Johnston Carmichael provide tax and business support to NFUS. For further information please visit www.jcca.co.uk NFU Members can contact the Union’s Taxation Advice Helpline, with their NFUS membership number, on 0800 023 2368


Ends

Contact Bob Carruth on 0131 472 4006
 

Date Published:

News Article No.: 20/16


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