The importance of the annual income tax return

Firstly, it is the means by which our tax liability is notified to HMRC by self assessment. As this is an important obligation, significant care is required when completing the Return to ensure that it is accurate.

All sources of taxable income and allowable business expenses should be included to arrive at the trading result and the tax position.

Secondly, the return serves many other purposes; it is accepted by banks, asset finance companies and mortgage lenders as proof of income.

Many merchants use Tax Return to establish a credit rating for farms.

The Return is also considered by the Social Security Agency in relation to National Insurance and eligibility for benefits.

Thirdly the Return is used by HMRC when considering eligibility for Inheritance Tax and Capital Gains Tax reliefs.

The fact that the economic activity is described as ‘Farming’ will assist in obtaining Agricultural Property Relief for Inheritance Tax and allows a claim for Hold-Over Relief for Capital Gain Tax.

When completing the Return, great care is required when claiming expense and reliefs. A higher rate taxpayer should include the amount of charitable donations made in a year, in order to claim the 40 per cent tax relief.

If, as an employee, a Working from Home Allowance is available this should be claimed. Where sole trader or a partner in a partnership carrying on farming has fluctuating profits, an averaging claim may be made.

A farmer can average two years or five years and elect for the most advantageous.

It is important that the annual Income Tax Return is filed by the due filing due: 31 January.

Meeting the filing deadline avoids penalties.

In addition, it allows the farmer who is unable to pay all of the tax liability by the 31 January, to seek a Time to Pay Arrangement with HMRC.

The Time to Pay arrangement is only available if the Tax Return has been filed on time. If successful in obtaining the arrangement, no penalty arises but interest is due on the outstanding Tax liability.

With many significant changes announced in the Budget in relation to farmers’ taxation the annual Tax Return should be carefully considered before submission. This is to ensure that it conveys accurately the nature and extent of farming carried out to enable the farmer and executors of the farmer’s estate to successfully claim Reliefs available.

For further information, contact Seamus McCaffrey on 02882241515.