The Farming Investment Fund: what does it mean for you?

The Farming Investment Fund (FIF) announced last week is designed to provide grants of between £2,000 and £25,000 towards specific farming equipment and technology; and grants of between £35,000 and £500,000 towards larger capital items to improve productivity, profitability, and environmental sustainability; the first of which is The Water Management grant.

So what are the implications of going ahead with this? How will it affect your tax liability in the year of expenditure?

Businesses owners may be used to timing large purchases of plant and machinery in such a way as to save tax. The Annual Investment Allowance of £1m (limit in place up to 31 March 2023) allows the first £1m of spend on qualifying assets to be written off in full against the taxable profits of a business. Simply put, you have a taxable profit of £50,000 in the year to 31 March 2022 and you spend £50,000 on a tractor within the same financial year, your taxable profits are now nil for that year.

Limited companies can currently benefit from the Superdeduction. This is a 130% allowance for spend on qualifying new equipment. Therefore, in the case above a £50,000 new tractor purchase would allow the company to write off £65,000 against the taxable profits of the business. This allowance is available up to 31 March 2023.

If you receive a grant towards capital expenditure, this will reduce the cost of that asset for Annual Investment Allowance and Superdeduction purposes, before any allowances are given. Therefore, grants such as the FIF that are paid after the expenditure are incurred (and potentially in a different accounting year) need to be taken into account in any tax planning. Under the FIF there are set amounts for the listed items so there still can be tax relief for the net spend over and above the receivable grant.

The first application window is open now and is available until 7 January 2021 for the Farming Investment Fund and 12 January for the Water Management grant. Full information on the scheme can be found on the Gov websites Guidance on Funding for farmers, growers and land managers.