Don’t miss out on capital allowances for farm machinery
By Rob Blair, Partner and ARA specialist
The coming year is set to be a strong one for capital investment allowances.
Having recovered from a dip in 2022 to grow by 9.18 per cent in 2023, agriculture has been impacted by rising costs, with a predicted growth of 1.73 per cent in 2024.
Capital allowances will provide the agricultural sector with much-needed support for growth if used correctly.
So, how can you make the most of the capital allowances available within the sector and how this can facilitate growth?
The driver of investment
Unsure whether now is the right time to invest? There are a number of factors that you need to consider before making the leap and optimising the benefits of the capital allowances available to the agricultural sector:
- Cash flow – Do you have enough capital to invest upfront in a large piece of equipment or will this leave you with enough resources to meet your running costs?
- Growth potential – Consider what you hope to achieve with your investment and whether you can realistically meet these goals.
- Repair costs – You’ll need to be able to meet ongoing repair costs as well as upfront investments.
You’ll also need to consider whether you plan to purchase new or second-hand equipment, as equipment generally needs to be new to qualify for capital allowances.
Annual Investment Allowance (AIA)
The Annual Investment Allowance (AIA) is a form of tax relief for businesses in the UK, designed to encourage investment in plant and machinery.
It allows businesses to deduct the full value of qualifying items from their profits before tax, effectively reducing the amount of tax they owe.
Qualifying items may include:
- Vehicles such as tractors (but not cars)
- Tools
- Construction equipment
- Office equipment
For farmers, this is particularly beneficial when investing in new or replacement equipment such as tractors, harvesters, or irrigation systems – which can represent some of the most significant costs of growth.
By making use of the AIA, farmers can invest in the latest technology and equipment, improving efficiency and productivity on their farms without the immediate financial burden of tax on those purchases.
However, there is a limit to the amount of relief you can claim – up to the value of £1 million.
Full expensing
Initially a temporary measure, full expensing is due to become a permanent measure in April 2024 which addresses the limits of AIA.
It allows businesses to deduct 100 per cent of the cost of an eligible asset from their taxable income in the year the asset is purchased and put into use.
This immediate deduction accelerates the tax benefits, providing a significant cash flow advantage.
Full expensing can apply to a wide range of assets and is particularly beneficial for accelerating investments in new technologies and equipment.
For expenditure that doesn’t qualify for full expensing, a special rate relief of 50 per cent can be applied, provided the capital meets the same conditions as for full expensing.
Want to know more?
Benefitting fully from capital allowances involves careful planning to identify the best time to make investments and apply for tax reliefs.
We can help you identify opportunities for capital allowances and make your business tax-efficient, leaving you with a healthy cash flow to meet running costs and expand your operations.
Talk to us today to find out more about capital allowances for agriculture.