Everything the agriculture sector needs to know about digital tax 

Words by Donna Torres, Director of Small Business at Xero

Technology is part of our everyday lives, but new changes to the tax system mean that the agriculture sector must change how they submit their VAT returns.  

Making Tax Digital (MTD) is the latest move from the UK government to modernise the tax system for businesses and individuals, and is the first step towards a more digital Britain. Despite MTD for VAT officially coming into play on 1 April 2019, many are still unaware of what this change in tax means for them and their business.

The new legislation from HMRC means businesses over the £85k VAT threshold are now required to submit their tax returns online via MTD-compatible software. Designed to transform the UK tax system, MTD will introduce digital record-keeping and, according to HMRC, make the tax system more effective, efficient and easier for taxpayers. 

The benefits for businesses are huge, but change can be tough. Here are four things for those in the agriculture sector to remember about the new digital tax legislation: 

1. ‘Splitting’ the business doesn’t mean you can avoid becoming compliant

Some agricultural businesses have considered ‘splitting up’ parts of their business - for example, splitting up the arable and livestock enterprise to reduce the turnover so that it falls below the £85,000 threshold. This will not work as enterprises will still have financial, economic and organisational links so HMRC will identify this as one business. 

2. Use software that helps you monitor cash flow and report on cropping

To monitor business performance effectively and efficiently, arable farms need the ability to report on cropping as well as financial years, as crops being drilled today will be harvested late next summer, and may not be sold until the year after that. Make sure you use software that understands the complexities of farming businesses, helps you forecast and is simple to use. You can find out more about how Xero supports farming businesses here.  

3. The agriculture sector has been one of the fastest groups to sign up to these new tax rules

The HMRC has said that 50% of agriculture businesses have already registered for MTD, despite claims that rural businesses may find it particularly challenging to comply. HMRC recognises that it will take farmers a period of time to adjust to the changes MTD will bring ,but for those who are still in the process of getting ‘digital tax ready’, investing in specialist accounting software like Xero or bridging software will help. 

4. Farming is unique so specialist advice from an accountant or tax consultant can help

Farming businesses can be complex and there is rarely a ‘one size fits all’ solution due to the different enterprise areas agriculture businesses may have. That’s why specialist advice is advised from either an accountant or a tax consultant to ensure that the new digital tax ruling is made as painless as possible for your business. 

For general business management support there are a number of software options out there specifically designed for farming and agriculture businesses, such as Figured - a cloud based farm financial management system designed to work closely with Xero that provides farmers and their advisors with real time production tracking, budgeting and reporting information.

The next deadline for filing returns under Making Tax Digital is 7 August 2019. For more information about Making Tax Digital, visit Xero’s hub at https://www.xero.com/uk/resources/making-tax-digital/.