The Chancellor's budget speech fails to benefit unincorporated rural businesses such as farms, according to the Country Land and Business Association.
The organisation said Chancellor George Osborne remarked on the beneficial effects of a Corporation Tax rate reduction to 21 percent from April 2015, but this will not benefit all rural businesses.
CLA President Henry Robinson said: “A high proportion of rural businesses are unincorporated, and run by individual sole traders or family partnerships.
“This means their business profits are subject to income tax, the rates of which can be significantly higher than Corporation Tax. If these businesses could benefit from similar tax rate cuts, they too would be able to invest more and raise productivity, thereby helping the economic recovery.
“Instead, the tax burden on unincorporated businesses has increased since 2010 as a result of increases in the rate of income tax and withdrawal of capital allowances. These companies are less able to invest out of retained profits.”
The CLA said farmers and rural businesses contribute significantly to the economy and deserved more support from the Chancellor.
“The Chancellor has missed a chance to support these businesses and enable them to continue to contribute to a sustainable and diversified rural economy and provide jobs for local communities.”
“Farmers will be grateful for the increase in Annual Investment Allowance to invest in plant and machinery, but this doesn’t apply to farm buildings.”
A leading renewable energy company UFW, part of the world leading DCC Group, believes that the Chancellor has failed to address the ‘environmental economy’ in the budget.
David Taylor, Business Development Manager at UFW, said the budget “has been widely acknowledged as a decent ‘work in progress’ report with reference to a strengthening UK economy, falling unemployment and inflation rates, and growth for this year projected to be amongst the strongest of any Western economy. However, despite economic measures announced today for the individual, families and businesses, it is disappointing that the Government has not done more to address one of most significant issues facing the global economy: global warming.
“The second of three publications by the UN’s Intergovernmental Panel on Climate Change, which was reported in the press on Monday, is one of the most comprehensive investigations into the impact of climate change ever undertaken - and it makes distressing reading.
“At a time when this renewable sector should be supported at both the local and national level the small and medium wind manufacturers are currently fighting hard to establish a separate Feed-In Tariff rate and simpler planning requirements to help ensure the ongoing work, growth, and in some instances survival of their industry.
“The message therefore is stark: urgent attention needs to be given to this looming crisis and change is demanded now. We cannot afford to sit back any longer, not least at a time when many acknowledge that the official prophecy of doom has already been written.”
But the NFU says the Chancellor’s announcement to double the rate of the Annual Investment Allowance is welcome news for agriculture but it would have been better if George Osborne had made it a permanent fixture.
In his speech, Mr Osborne doubled the allowance to £500,000 and extended it until 2016 but the NFU says permanence would have helped the industry better plan for the future.
“Despite the reasonably good news on the investment allowance for plant and machinery, any incentives for capital infrastructure investment were sadly lacking in today’s budget. This is all the more frustrating given that few farming businesses are in a situation to benefit from the continued reductions in corporation tax. While the Chancellor talks about adding resilience and balance to the economy, farmers need to invest in capital items, and not just plant and machinery,” said NFU President Meurig Raymond.
“The NFU applauds the government’s intention, this autumn, to publish a long-term plan to protect the country from future flooding. Indeed, we highlighted the need for a root and branch review of the government’s flood management policy in the NFU Flooding Manifesto. However, it is not yet clear whether the announcement of £140m of funding to repair and restore flood defences includes or is in addition to the £130m announced in February.
“Also, with a renewed interest in careers in the agri-business sector, the industry will welcome the extension to apprenticeship grants. The challenge for farming will be to get its fair share from the extra £85m that the Chancellor has announced.
“In other good news, the UK drinks industry will be pleased with various measures including freezing duty on Scotch whisky and cider, in which he singled out weather affected cidermakers in the West Country.”
And experts at the UK200Group of independent chartered accountants and lawyers welcomed the Budget doubling of a tax incentive for investment in plant and machinery as a boost for farmers.
Tax specialist Alan Boby, a partner at Oxfordshire and Northamptonshire-based UK200Group member Ellacotts LLP, said Chancellor George Osborne’s 2014 Budget announcement of an increase in the annual investment allowance (AIA) from its current level of £250,000 a year to £500,000 from next month could even wipe out taxable profits for some farmers and other businesses.
The proposal increases the maximum amount of the AIA to £500,000 from 1 April 2014 for corporation tax and 6 April 2014 for income tax until 31 December 2015, after which it will return to £25,000.
Alan said: “AIAs can be claimed on plant or machinery, which can include building expenditure on integral features, such as electrical and plumbing installations, as well as the more usual farm equipment such as tractors and combines.
“This means that farmers who diversify by converting farm buildings into commercial lets may receive an immediate tax write-off against the rental income for some of the construction work."
He said it was crucial for farmers to be aware of steps to take to maximise the value of the relief, along with potential pitfalls. Issues to be aware of include:
- A sole trader or partnership business controlled by the same person as a company and the company itself are usually both entitled to AIAs without restriction, i.e. they can claim two allowances of £500,000
- Two companies under common control or two unincorporated business under common control may have to share AIAs. The definition of control is set out in tax legislation but broadly means one individual (along with those connected with him or her) own or having voting rights over more than 50 per cent of the company
- Even if the businesses are under common control, AIAs may not be restricted if the businesses are not ‘related, i.e. having shared premises or similar activities
- Partnerships with individuals as their only members qualify for AIAs. However, trusts or mixed partnerships – those with corporate members – generally do not
- The increase in AIAs comes with complex transitional rules to deal with accounting periods straddling the date of change to AIA limits.
Alan added: “Remember, it is the date when expenditure is incurred that determines into which accounting period the allowances fall in most cases.
“This is partly a matter of contract law and accepting the price quoted by a supplier for the supply of equipment may be enough to trigger the date of acquisition. There are exceptions to this, such as where assets are purchased under hire purchase agreements (when the date the asset is brought into use is relevant) and for delivery periods exceeding four months (where expenditure may need to be deferred).
“Clearly, while the increased AIA is welcome, some complex issues are involved and any farmer or agricultural business who wants to maximise the value of the higher allowance should seek expert advice.”
CPRE Director of Policy and Campaigns Neil Sinden summarised: "We welcome measures to secure the housing we need in the right places. We need to see a step change in the quality of new development at Ebbsfleet.
"This means design and master-planning of the highest quality, combining higher density housing with plenty of green space; a serious attempt to tackle car dependency and reduce energy usage; and a connection with the surrounding countryside. Will the Government meet this challenge, or does it just want to build lots of houses as quickly as possible?"
Sean McCann, personal finance specialist at leading rural insurer NFU Mutual, said: “The Chancellor’s Budget surprise announcement that Annual Investment Allowances for businesses would be doubled to £500,000 until the end of 2015 is great news for farmers and the rural economy. It should encourage new investment in farm machinery and plant boosting farm incomes and helping create jobs in the rural economy.
“To help farmers make long-term plans for business development we urge the Chancellor to make this increase permanent in the next Budget.
“There was also good news in the Budget for country people in flood-prone areas that an extra £140m is being put aside for flood protection measures.
“Rural dwellers also heaved a sigh of relief that planned increases in fuel duty were scrapped – and £200m given to local authorities to repair the thousands of potholes which are currently making driving hazardous on country roads.
“There was even a hint of good news for farmers producing crops for whisky beer and cider production – frozen or reduced duty rates could boost consumption and hence farm gate prices.”
Sean hailed the Chancellor’s statement as a watershed moment for people saving into pensions and ISAs.
“George Osborne has freed pensions and ISAs from the shackles of many rules and regulations. It’s those restrictions that have put all too many people off saving into a pension before now.
“With this new freedom, more people should feel greater confidence in how they can access their retirement savings in the future. It should boost savings, investments and help to encourage many more people to save for their retirement.
“Some of the changes will come into almost immediate effect. From next week, people aged 55 and over, and with pension pots worth up to £30,000 will be able to take it all as a lump sum rather than buying an annuity.
“From next year, annuities will no longer be the standard option. Instead, the Chancellor has proposed a raft of changes to ensure people taking their pension can choose to access their pension pot almost as they wish. There will be some tax applied but this will be in line with income tax rates rather than the current 55% rate of tax.
“These changes will create some uncertainty for people looking to take their pension within the next 12 months. We expect to be advising more people on their retirement options over the coming weeks and months.
“Many people will still want to use their retirement savings to buy a guaranteed income, so annuities will still have a very valuable part to play in many people’s retirements.
“NFU Mutual was not alone in calling for the Chancellor to liberate the ISA system. ‘ISA independence day’ will be celebrated by savers and investors on 1st July as the restrictions on how much can be saved in cash ISAs and transferred between stocks and shares to cash will be lifted. The dramatic increase to £15,000 in the total amount that can be saved or invested in each tax year is very welcome too.
“The increase in the Personal Allowance to £10,500 from next year is another boost to the take-home pay of many people. It will mean more money in most people’s pockets but changes to the 20% tax band means that the 40% tax band will start at £42,285 next year, that’s still lower than when George Osborne started his Chancellorship in 2010.
“The Chancellor has stunned everyone with monumental changes to the pension system. Trusting people investing in pensions with more freedom and choice will breathe new life into the system. The reasons many people have chosen to forgo the generous tax breaks and not save into a pension have been swept away in this Budget.
“The only people who look set to lose out are tax evaders. The taxman’s increased budget for reclaiming unpaid tax will make HMRC’s reach longer and its teeth sharper than before.”
