Is lifestyle and income in sync?
This was the very clear message delivered by Omagh-based accountant Seamus McCaffrey courtesy of his presentation to Guild of Agricultural Journalists’ members earlier this week.
Seamus explained: “HMRC has invested heavily over recent years in developing its Connect database. This allows the organisation to cross reference tax returns with a wide variety of financial transactions. These could include cars, houses and land acquisitions, all of which now require purchasers to declare national insurance numbers and other related information. Subsequently, this data can be digitally captured by the revenue authorities.
“But the bottom line is that HMRC can now develop individual profiles on all taxpayers, which can be cross-referenced with submitted tax returns.”
He added:“Recent months have seen a significant increase in the number of inspections carried out by HMRC. This reflects the fact that Connect is now generating the information they need to more easily identify businesses with a tax anomaly.
“What’s more, tax inspectors have been specifically trained to work within specific sectors and to investigate both income tax and VAT-related matters at the same time.”
Seamus stressed the need for farmers to discuss the formal structure of their businesses with an accountant on a regular basis.
He commented: “Three options are officially recognised by HMRC in this context: a sole trader, a partnership or a company. The structure put in place must best reflect the tax planning needs of the business and of those involved in it.
“Succession is an issue that should also be discussed regularly between farm families and their accountants. This will focus on the potential mitigations that are available, where exposure to Capital Gains Tax and Inheritance Tax are concerned.
“Discussions on the issue of succession will also encourage those involved within a farming business to make an appropriate will.”
The Omagh-based accountant confirmed that a strong set of accounts will make it much easier for farmers to deal with the banks. He said: “It’s important that the balance sheet of the business covers all relevant assets. This includes land.
“This is sometimes forgotten about in the case of farmers who inherited the land they now own. The reality, however, is that the value of the land being farmed adds significantly to the balance sheet of the business.”
Guild members were informed that farm businesses operating as companies can access a 230% tax credit for expenditure on research and development. Seamus explained: “R & D in this context does not require the active involvement of AFBI, CAFRE or some outside agency. Rather, it entails a decision on the part of those involved within the business to assess the impact of new technologies on their farming operation.
“This could involve the sowing of different grass seed mixtures, an investment in new breeding stock or, in the case of poultry, an assessment of new house lighting systems.
“In order to qualify for these tax credits, the directors of the limited company must be able to provide evidence of “carrying out trials to solve a problem on their farm.”
The Office of Tax Simplification (OTS) was created 12 years to identify areas where complexities in the tax system for both businesses and individual taxpayers can be reduced. Guild members were told that its remit has included a recent review into the exemptions permitted for the purposes of Capital Gains Tax and Inheritance Tax.
Seamus concluded:“OTS is an advisory body to government. There was an expectation that the 2021 Finance Bill would include proposals to reduce the number of exemptions allowed for the purposes of capital gains and inheritance taxes.
“The enacting of such measures would have a direct impact on the farming industry. As it turned out, the much anticipated OTS proposals did not materialise. But that’s not to say they won’t be put forward at some future date.”