5 ways that farmers can reduce their tax bill in 2022

1) Bring purchases forward

Depending on your year-end, you could bring purchases (e.g. machinery) forward into the current tax year to offset against profits – but only if you were planning to make those purchases anyway. Limited companies pay a flat rate 19% tax on profits – unlike sole traders and partners who incur a higher basic rate – so timing of expenditure is crucial.

2) Carry back losses made

An option for both companies and individuals is to carry back any losses made in 2022/23 to reclaim paid in 2021/22. There’s no limit on how much you can reclaim but you can’t do it until the end of the financial year, so you’ll still have to pay the tax before reclaiming it.

3) Make use of farmers’ averaging

Sole traders and partners can make use of farmers’ averaging, a facility whereby profits can be averaged over two or five years, to even out fluctuating incomes.

4) Reduce payments on account

Payments for 2022/23 will be set on the high profits in 2021/22 – with half due in January 2023 and half in July 2023. If you’re expecting profits to be lower these payments can be reduced. It’s important to forecast accurately, as if payments are reduced below the actual income level then HMRC will charge interest on the difference. However, with HMRC charging interest at 3.25% per annum it could work out as a good alternative to an overdraft facility.

5) Change the financial year-end

It may be possible for some businesses to change their financial year to encompass loss making months, however this is often more complicated than it seems and will not be suitable for everyone.