Q I’m worried about how falling prices will affect my cashflow in the next few months. Can you advise me how to manage this?
A The past few months have seen prices dropping across all agricultural sectors and this will cause cashflow concerns for many.
Farming generated good profits during 2013-14 as a result of increased prices during this period, leading to larger tax bills due for payment in January 2015 – a time when cashflow is likely to be tight.
Part of your tax payment in January may be a payment on account towards your 2014-15 liability. However, as it is likely that 2014-15 profits will be lower, this payment on account could be reduced to reflect this, so review the current year to consider the likely profit. Farmers may also be available to average out the good year with this bad year, or any known losses can be set back against a better year, reducing your liability.
Obviously cost control is a good way of improving cashflow, for example monitoring the larger costs such as feed and finding any way in which these can be reduced. After a summer that has produced large quantities of good-quality fodder for many, it may be worth considering a lower input system this winter. Keep an eye on repair bills, which can quickly mount up, especially smaller items that tend to go unnoticed at the time but can add up to significant amounts if not monitored.
The timing of income and expenditure can also make a difference. Consider whether any animals can be sold before the winter to bring income in earlier, reducing feed expenditure over the winter. Also, is any planned capital expenditure absolutely necessary at this time or can it be delayed? The annual investment allowance (AIA) is to remain at £500,000 until the end of December 2015, therefore tax relief will not be lost by delaying this expenditure for a few months. In any case the tax relief offered by the AIA may not be needed in a poor year.
Another point to consider, especially for non-March year ends, is whether a change of year end would be beneficial. If you are carrying forward overlap profits, a change of year end enables these overlap profits to be utilised, potentially reducing your profits and hence the tax payable.
Most important is to plan ahead and understand if there are going to be issues. It is much easier to sort if you know there will be a problem ahead of the time. It will give you time to speak to the bank manager and put measures in place if needed.
Read more from our Business Clinic experts
The information provided in these articles does not constitute definitive professional advice and is provided for general information purposes only.
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