A time to reflect but also to look forward to the year ahead…
Nick Banks, Head of Agriculture at Scrutton Bland, takes time to reflect on the last few years and looks ahead to the coming year.
A s I write this article, we are in the midst of completing our clients tax returns for the tax year ending 5 April 2023. That tax year reports annual farm accounts ending between 6 April 2022 and 5 April 2023, a rollercoaster period highlighting the many challenges faced by farmers that manifest in the figures being reported. The invasion of Ukraine by Russia on 24 February 2022 was a catalyst for a number of those challenges. Farmers with a year end up to 30 June 2022 will be reporting results for the harvest year 2021. Profits in the main not exceptional but those who managed to hold over crops in store from that harvest and sell at post Ukraine prices achieved super profit on the back of a harvest with low input costs.
The harvest 2022 result for many was also very strong, with robust crop prices and inputs purchased before inflation took hold to drive up prices. Cost of fuel and wearing parts inflation led to higher harvest costs and that cost increase has seemingly endured. The figures we are reporting show those that scooped bumper profit of 2021 crop sold from store combined with a robust margin on the 2022 harvest are now filing some strong profits in the 2022/23 tax year. Those on the front foot have looked ahead and secured new machinery capital allowances to mitigate the uplift in taxable profit. Some invested in the fabric of the farm, such as land, new buildings or diversification such as holiday lets. Sound decisions at the time they were made but the challenge of increased interest rates is now to be faced if the investment was funded by debt.
Of course, in the same time frame Basic Payment Scheme subsidy has reduced but that reduction is masked by stronger margins. That reduction will be felt with less bountiful gross margin so it is important Sustainable Farming Incentive (SFI) and Countryside Stewardship options are explored. Tax relief by averaging over a two or five-year period can help smooth those profits and the team at Scrutton Bland are navigating some complex spreadsheets to optimise the tax position for clients. Of course, as we file these tax returns conversations with clients are now reflecting on the 2023 harvest result which was dogged by poor weather. Margins are expected to be squeezed with moderating crop prices but inflation driven growing costs. There may be good reason to reduce tax payments on account but planning is also needed for Basis Period reform, a topic we have covered in previous newsletters.
4 | SCRUTTON BLAND | AGRICULTURE AND FARMING
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