Business Clinic: We can’t find the cash to pay our January tax bills

Whether it’s a legal, tax, insurance, management or land issue, Farmers Weekly’s Business Clinic experts can help.

Here, Kate Bell, a partner with accountant Albert Goodman, advises on an issue that will be familiar to many dairy farmers faced with finding the cash to make the income tax payment due on 31 January.

See also: Business Clinic: tax advice on letting sheds for commercial use

Q: We are dairy farmers, milking about 400 cows in a four-person partnership with my in-laws.

We had a great 31 March 2025 year end and so we have tax payments of more than £180,000 between us, due at the end of January 2026.

However, the Environment Agency is forcing us to to spend significantly on our slurry system and the milk price is dropping so we don’t have the cash for the tax bill. What can you advise?

A: Paying tax is a burden, but it is also a sign of success.

The real challenge is not avoiding tax, but making sure you use all the allowances available and minimising the rate at which you’re paying tax so that you do not pay more than you need to.

Income tax

I am assuming that the payment due in January is made up of two parts: the balancing payment for your 2024-25 income tax and national insurance (NI), assuming no payments on account have been made, plus the first payment on account towards your 2025-26 liability.

Depending on your circumstances, it could also include items such as child benefit clawback, student loan repayments, or capital gains tax. Regardless of how it is made up, the full amount is due by 31 January 2026, with a second payment on account due on 31 July 2026.

One key question is not just how much tax you are paying, but your effective tax rate.

To illustrate, I have assumed a strong year with profits of £400,000 (£1,000 a cow) and minimal qualifying expenditure, say £12,000.

In this scenario, the combined tax and NI bill could be around £120,000 (effective rate of 31%), with a further £60,000 due as the first payment on account.

While often a shock, this reflects the level of profit generated. Effective tax and NI rates for partners are as follows:

While corporation tax rates are lower, ranging from 19% to 24%, extracting profits from  a company can trigger income tax and you need to consider the wider picture as to whether a potential change in business structure is suitable.

Restructuring is something to consider going forward but the tax due for last year can only be reduced in limited ways.

First, ensure the accounts are complete and accurate. Have all business expenses been included? You can accrue for work done before the year end even if invoices have not yet been received.

Consider contractor costs, repairs, or any work carried out before year end. If family members worked in the business, were they paid and recorded correctly? Also check for any missed gift aid donations or pension contributions.

Beyond this, the main planning tool for historic profits is averaging, particularly where profits fluctuate.

Averaging over two or five years can smooth peaks and troughs and reduce the effective tax rate significantly or reduce payments on account.

Talk through the above with your accountant and ensure all possible reliefs have been claimed.

Payments on account

While last year’s tax is largely fixed, you may be able to reduce payments on account if future profits are expected to be lower.

Be cautious: if reduced too far, interest is charged at around 8% back to when payments are due – in this case January 2026 and July 2026.

Although milk prices are falling, profits for the year to 31 March 2026 may still be reasonable given the strong milk price coming into the year.

Spending on slurry system improvements may qualify for 100% relief under the annual investment allowance, reducing your taxable profit.

For example, £100,000 of qualifying expenditure could reduce your tax bill to about £80,000 (ignoring averaging) and cut payments on account by £40,000, split between January and July.

Timing of expenditure

If this expenditure is going to be around your year-end you should ensure you are happy with the timing and this will depend on whether there is an unconditional commitment to the spending.

However, it may also be affected by how it is funded, so careful planning of the expenditure is advisable.

This would also apply to other qualifying expenditure such as swapping in a telehandler or tractor, building a new silage clamp, fitting solar panels and so on, where the net expenditure could qualify.

Finally, if you cannot afford your tax bill, contact HMRC early to discuss spreading payments. And if financial pressure is affecting your mental health, please seek support – you do not have to deal with it alone.

Do you have a question for the panel? Outline your legal, tax, finance, insurance or farm management question in no more than 350 words and Farmers Weekly will put it to a member of the panel. Please give as much information as possible. Email your question to FW-Businessclinic@markallengroup.com using the subject line “Business Clinic”.