Higher tax bills next year?

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Much has been written in recent months about rising input prices and the huge pressure this is putting on farm cashflows. There is no end in sight to the increased cost of fertiliser, feed and fuel, although the early payment of 50% of the 2022 Basic Payment Scheme (BPS) money will provide a bit of help.

Here we will look at how some Cumbrian farmers may face an unwelcome tax bill in January 2023, and what can be done to reduce pressure on cashflows.

There are several reasons why accounting profit and cash generated can be totally different. A large fertiliser bill paid just before the accounting year-end leaves a big hole in cashflow but will have little or no impact on profits. This is because fertiliser still in the shed, or spread on growing crops, will increase year-end stock values. This means that the increased costs will be included as an expense in 2023 and not 2022.

The other side of the coin is whether output prices have increased sufficiently to cover these increased costs? The answer for most businesses unfortunately is that without further price increases, they are likely to make less profit in 2023 than in 2022.

This leads us to a position where profits in 2022 may be higher than the previous year, with extra tax being due in January 2023 at the same time as high winter feed bills will need paying. The early payment of 50% of 2022 BPS in Summer 2022 will obviously mean a reduced receipt in December 2022. Hence farmers need to plan ahead to avoid cashflow problems in early 2023:

  • Part of the tax due in January 2023 will be a payment on account for 2023 profits, and a claim to reduce this provisional payment can be made. Care needs to be taken not to reduce the payments too much, as interest charges will arise.
  • An averaging claim can be extremely useful where profits fluctuate and can result in payments on account reducing.
  • If the 2023 accounts result in a loss, this can be carried back and offset against the 2022 tax bill. However, as this loss will not be quantified until later in 2023, the full tax reduction will not be available in January 2023.

As always, having up-to-date accounting information and early discussions with your accountant are essential to navigating these challenging times.


For advice and support for your farming business please get in touch with our Agricultural Accounting Specialists on 0808 144 5575 or email help@armstrongwatson.co.uk

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