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Following on from the March 2015 Budget, in the Summer Budget yesterday the Chancellor announced a consultation on introducing an extension to the current two year farmers averaging rules. This is to acknowledge and assist the farming industry with the difficulties they face caused by volatility on world markets.
The consultation document has now been published. It offers two options and invites comments by 7 September 2015. There are similarities between the two options in that the profits of all five years will be added together to calculate the averaged profit. This will result in a lot of additional work as the tax bills for all of the previous four years will need to be recalculated, however it should be advantageous for our clients.
The main difference between the two options in the consultation document, is that under the first one, an annual claim will be required whereas under the second option, an irrevocable election is made which will cover five tax years. As this is just in the consultation stage, there are no definite answers on how this will work as yet. We will be drafting a response to the consultation document however further consideration of the document is required before we do respond.
In addition to the consultation of the averaging rules being announced, the Chancellor also committed to maintaining the AIA at £200,000 for the rest of this Parliament. This was due to drop to £25,000 from January 2016 so it is good news from this perspective however, AIA currently stands at £500,000 so it is in effect a cut of it’s current value to business owners. Having said that, an AIA of £200,000 is likely to be seen as reasonable, particularly for SMEs, as well as sustainable whereas a cut to £25,000 would have caused widespread criticism.
A transitional amount of the AIA will need to be calculated for accounting periods which straddle 1 January 2016.
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