Selling Farm Machinery – Do I Have To Pay Tax?

“We operate as a farming partnership and are looking to raise some cash. One suggestion my partner made was to sell some of our machinery, but I am concerned we will have to pay tax. Is this right?”

Just as investment in plant and machinery can reduce your taxable profits, selling plant and machinery can indeed increase your taxable profits. Given that there has been 100% tax relief provided on purchases of plant and machinery in recent years under the Annual Investment Allowance, for many farming businesses the tax written down value of their plant and machinery is likely to be small, if not nil. Therefore, selling any asset without reinvestment in the same year can result in a taxable profit often equal to the proceeds received and can catch some businesses out.

It may be that you can sell the machinery to raise some cash early on in the financial year and then before the year end buy some machinery on finance to offset the tax. There are rules on when a purchase of plant or machinery is recognised for tax purposes and ensuring anything bought on finance meets these conditions is a must.

You may also want to discuss with your accountant your expected trading profit or loss for the year. If there is a loss, it may be that the loss can offset the taxable proceeds received on selling the machinery. Alternatively, you may be able to use farmer’s averaging to use personal allowances or lower rates of tax from previous years against the proceeds. It is important to have that in year advice and consult with your accountant when you are making these decisions.

Should you wish to discuss the selling of farm machinery or any other tax planning, strategic or accountancy needs, please do feel free to get in contact with me at no obligation. You can contact me on 01905 794 504 or you can email me on ben.allman@ballardsllp.com.