Incremental tax rises add to pressure on rural businesses
Farmers and rural businesses face a further squeeze on their finances following the Chancellor’s Budget, with rising employment costs and changes to tax reliefs adding to the burden, according to financial adviser Oliver Bond.
Mr Bond, a director at Kinbrook Group’s Old Mill, said the Budget offered little for farmers to celebrate, although its relatively quiet nature might help restore confidence following last year’s inheritance tax changes.
“John Healey has done little more than tinker around the edges,” says Oliver Bond, director at Kinbrook Group’s Old Mill. “But farmers might welcome an unexciting Budget from a government that seems to be trying to rebuild some confidence in business.”
A freeze in fuel duty until next summer, including red diesel, will be welcome, particularly amid uncertainty caused by the war in the Middle East. Rural businesses that have diversified into hospitality could also benefit from an increase in the annual business rates threshold from £12,000 to £18,000.
However, Mr Bond warned that other measures would bring additional costs. The minimum wage will rise by 3.9 per cent to £13.21 an hour, increasing labour costs for businesses that already face significant overheads. Self-employed workers will also need to prepare for the expansion of Making Tax Digital from 2029, which is expected to move many from paying income tax twice a year to quarterly payments.
Mr Bond said increased investment in HMRC enforcement could also mean greater scrutiny of tax affairs.
“Ominously, we have heard of HMRC being bolstered with more investment in collecting overdue or undeclared tax – so everyone needs to make sure their house is in order,” says Mr Bond. “We are already seeing more tax investigations, so it’s worth investing in tax investigation cover with your accountant, to protect against the time and cost should you be targeted.”
Farmers hoping for a reversal of the inheritance tax changes introduced by Rachel Reeves were disappointed. However, Mr Bond noted that there had been no further changes to agricultural property relief or business property relief, and said the Government had expressed a desire to protect the ability to pass on family businesses.
Those selling all or part of a business face a less favourable position, with business asset disposal relief against capital gains tax reduced from £1m to £500,000.
“It was £10m a few years ago – there is ever diminishing tax relief for entrepreneurs,” he adds. “The newly announced founders’ relief – levying 10% capital gains tax on lifetime disposals up to £10m - could be good news, but the devil will be in the detail.”
There is some support for businesses investing in machinery and other capital assets, with the first-year capital allowance increasing from 40 per cent to 50 per cent. However, this is accompanied by a reduction in the writing down allowance from 14 per cent to 12 per cent, which Mr Bond said would affect larger farms with high capital expenditure.
A further two percentage point increase in income tax on savings and rental profits from next April will add to the overall pressure.
“The headline figures aren’t large, but the drip-drip of incremental increases in several areas will continue to weigh on rural business across the board.”
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