Background

A Cheshire farmer had developed a profitable farming business and then diversified into haulage and contracting. The diversified business had grown slowly but had now become quite profitable. With both businesses operating through the farm partnership the farmer was expecting to be subject to 40% tax.

The solution

Murray Smith’s experts advised him to split the two businesses and operate the haulage and contracting business through a new limited company. We advised that the limited company would allow him to shelter profits in the business from the higher rates of personal tax. The limited company profits would only be subject to Corporation Tax at 20% if they were not withdrawn. He could then use the money in the company to make further investments in the business or time any withdrawals through dividends to coincide with years when farming profits were low.

During the process we made sure that the farmer was able to maximise his use of Annual Investment Allowances for plant and machinery so further decreasing his tax bill.

Results

The farmer now has two profitable businesses and a structure which provides flexibility to minimise his tax bill.

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