The issues around Capital Investment and Tax

When planning an investment, tax is a key consideration as the claim for Capital Allowances must be carefully prepared and be compliant with legislation and statements of practice issued by HMRC.

All farm business can claim Capital Allowances on eligible expenditure on the net cost, excluding Vat and capital grants, in use on the farm at the end of the accounting period. The expenditure must be incurred during the accounting period and paid for during that period or within four months after the end of the accounting period.

There are a number of different rates of Capital Allowances and various limits depending on the nature of the expenditure. For general buildings, there is a 3 per cent structure and buildings allowance.

For specialized buildings, for example, silo pits, slurry storage, grain storage 100 per cent Annual Investment Allowance (AIA) available up to a limit of £1 million in an accounting period.

The AIA is also available to claim on the purchase of plant and machinery new or second-hand. Expenditure incurred on the cost of integral features in a building attracts a different rate of capital allowances. To the extent that expenditure incurred in a particular accounting year is not claimed, the balance may be claimed at the rate of 18 per cent per year, reducing balance.

A “super deduction” is applicable for expenditure incurred from 1 April, 2021 to 31 March, 2023 allowing companies to benefit from a 130 per cent first year allowance for capital expenditure on new plant and machinery. This deduction, applicable to companies only, will allow companies to potentially reduce corporation tax payable by 25p for every £1 invested in eligible plant and machinery.

Capital expenditure is necessary on every farm involving a significant spend with cash flow implications. Careful planning, in consultation with the farm’s accountant, to ensure the maximum tax write-off, together with any linkage with the new Tier Two will cushion the affect on the farm’s cash flow.

For further information, telephone (028) 82241515.