Leading accountant reveals the extent of the financial challenges facing farm businesses

The continuing decline in farm gate prices is an important factor in this regard,” confirmed Omagh-based Seamus McCaffrey.

“But there are many other issues adding to the complexity of the financial challenges confronting agriculture as a whole.”

McCaffrey cited the growing threat of bovine tuberculosis (bTB) as a case in point, adding: “Many of our clients have their herds restricted at the present time because of the disease. As a consequence they are having to manage greater numbers of stock than would normally be the case. This is adding significantly to the costs incurred by these businesses.

“Many farmers are also concerned that they won’t have enough silage saved to see them through the coming winter. The issue of silage quality is a related matter.”

He continued: “The possibility of concentrate feed costs rising over the coming months has also been factored-in by many farmers.”

It all adds up to a scenario that will have significant cash flow and tax implications for farm business over the coming months.

According to McCaffrey, effective tax planning at a time of reduced prices is critically important for all farm businesses.

Centre stage within all of this is January 31st 2024, the next date when all sole traders and those involved within business partnership must pay tax. There will be two components to the liability to be paid: the balance of the tax owing up to April 5th 2023 and a payment on account for the current year.

The Omagh-based accountant explained: “The balance piece is based on the actual tax return and accounts filed for the year ending April 5th 2023. The payment on account for the current year is normally 50% of the previous year’s liability.

“However, it is possible to pay a lesser payment on account.

“The way to do this is prepare profit and loss figures for the current year to date, which will enable an informed guestimate to be made of the tax liability for the current year.”

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He added:

“If this projected liability for the current year is less than the final liability for the year ending April 5th 2023, then a lower amount of tax can be paid as a payment on account in January 24.

McCaffrey went on to point out that before the tax return for the year ending April 5th 2023 is filed, it is important it is important to review carefully that the return is accurate and that all income and expenditure are included.

He further explained:

“The following question should be addressed: have all items of allowable expenditure been included?

“This list can include the following: the cost of trips to agricultural shows, the cost of buying the farming press, plus the cost of wages to family members aged 13 and above.

Other questions should also be addressed, where eligible expenditure is concerned. Is the personal allowance of a spouse, £12,570, fully utilised? Is the valuation of livestock realistic? Has the home-bred reduction and the herd basis been considered?

According to Seamus McCaffrey, where profits fluctuate, and particularly if one year is assessed at the 40% rate of tax, an election for profit-averaging may be beneficial.

He explained:

“The farmer may elect for either two-year or five-year averaging, opting for the one which is more advantageous.

“When the amount of tax to be paid on January 31st 2024 is known, it would be useful for the farmers concerned to do a six-month cash flow forecast.

“This will highlight if, and to what extent, the overdraft limit for the business is to be exceeded.”

In cases where overdrafts will be exceeded, McCaffrey strongly recommends farmers discussing matters with their banks. Applying to His Majesty’s Revenue and Customs (HMRC) for a ‘time to pay arrangement’ should also be considered.

Banking options, based on cash flow projections, include a temporary increase in the overdraft limit, or making interest-only payments for a specified period on bank loans.

For an application to HMRC for a ‘time to pay arrangement’ to be successful, all tax returns must be filed and there must be insufficient capacity within available banking arrangements to pay the tax.

Seam McCaffrey continued:

“If the request to HMRC is successful, a period of up to 12 months to pay the tax may be obtained.

“Interest is charged from February 1st 2024, availing of a time to pay arrangement is not a factor in a HMRC review.”

He concluded:

“The next six months requires farmers to maintain regular contact with their accountants and banks in order to effectively manage the cost structure and cash flow of their businesses.”