The vast majority of farmers are self-employed, either as a sole trader or a partner in a partnership.
As a result, they are required to make two payments on account of their annual tax liability. The first payment on account for the 2023/24 tax year was due on 31 January and the second payment on account is coming up fast on the 31 July 2024.
Initially, the payments on account for the 2023/24 tax year are based on your profits for the previous year, so 2022/23.
With such a prolonged period of wet weather this year many farmers will have seen a drop in income and or future income and will struggle to meet the payment due on 31 July 2024.
What you can do
If you find yourself in this position, there are two main things you can do.
The first is to look at if your actual profits for 2023/24 are down on the 2022/23 tax year on which the payment is currently be based. If they are, the payment on account can be reduced to reflect the actual profits for 2023/24*.
The second option is to apply for a Time to Pay arrangement from HMRC if you are still unable to meet the payment.
This allows you to spread the tax payment over a period of six months, or in some cases longer. HMRC will however still charge interest on the outstanding amount, which is currently at a rate of 7.75%.
As many farmers are VAT registered and regularly in a VAT repayment position you might also consider including your VAT repayments in any arrangement to pay the income tax liability.
Basis period reform
*Note that 2023/24 is a more complicated year to calculate profits because it is the transitional year for Basis Period Reform**.
You may therefore need your accountants help to calculate the figure, as it can be a complex process. For example, if you have previously had a 31 October year end, for 2023/24 your profits will comprise:
- A standard part – the 12 months to 31 October 2023
- A transition part – the profit for the period from 1 November 2023 to 31 March/5 April 2024. This might be calculated using an extended period of accounts if you are moving to a 31 March year end or by taking 5/12ths of profits for the year to 31 October 2024.
This is then reduced for any brought forward overlap relief (HMRC can provide this is needed) and the transition part is then spread over 5 years.
Basis period reform will mean that, from 2024/25, self-employed individuals will be taxed on the profits arising during the tax year rather than their accounts year.
Many accountants will have suggested changing the accounting period to 31 March to alleviate the complexities of keeping a different accounting period, say 31 October.
Whilst this will alleviate complexity it is not always going to be feasible or desirable for farm businesses, something which the NFU has continued to point out to HMRC along with calling for clarity on how Making Tax Digital will work for such businesses.
