Industry Eye: Rural communities to escape worst effects of emergency Budget

Capital Allowances – thankfully, the planned removal of the Annual Investment Allowance never materialised.

Unfortunately, the welcome increase in the annual limit from 50,000 to 100,000 introduced in April , will be cut to 25,000 by 2012. In addition the 20 per cent rate applied to most farms assets will be reduced to 18 per cent.

The majority of farming businesses are sole traders or partnerships and have utilised the AIA to great effect, particularly where profits have increased due to world commodity price fluctuations.

It's often an easy and 'quick' fix to reduce a tax bill. If you do have plans for capital expenditure on qualifying assets, it'll be advisable to ensure the timing takes advantage of the current allowances.

Capital Gains Tax – again the predicted hike which could have impacted significantly on rural property owners never materialised. Instead, the Chancellor has extended the entrepreneurs relief to a lifetime limit of 5m at the reduced rate of 10 per cent (up from 2m).

This will be welcome news for those planning on disposing of their farm, particularly if it had been held for a long time. Those not qualifying for the relief will be taxed at 18 per cent if you are a basic rate taxpayer and 28 per cent if higher.

The CGT rate will be calculated by adding the net gain to your taxable income to determine the appropriate bracket. From a farming perspective, if you're planning a disposal and won't qualify for entrepreneur's relief, it'll be best to try and time the disposal with a trading loss to reduce the chance of falling into the higher tax bracket.

Furnished Holiday Lettings – many farmers use surplus cottages as holiday lets and rely on them for additional income and favourable IHT tax treatment. Labour plans to scrap this would have meant potential IHT increases through non-qualification for business property relief.

This relief will remain but the number of days a property must be let within the year to qualify will increase.

Other headline elements, such as increasing the VAT rate, will probably not have significant impact as most rural businesses are VAT registered and net claimants of VAT from HMRC. It may mean an increase in cash requirement, especially if you submit VAT returns quarterly. You may consider moving to monthly VAT returns.

Thankfully there are no plans to introduce VAT on food, for which additional costs would have just been passed down to the farm gate. Overall, it could have been worse and the Budget will not have as great an impact as thought. The increase in CGT relief is welcome, but the reduction in the AIA from 2012 will impact future decisions to replace machinery.

The Government's announcements make company structures a very tax efficient vehicle that profitable farming businesses should consider.

Louis Fell is based at the Shiptonthorpe office of George F. White. Tel: 01430 876010. www.georgefwhite.co.uk