Cashflow pinch points are likely to arise for many farming businesses in the next few months.
Aside from lower yields on the arable front and rising costs of production for most sectors, the knock-on effects of Covid-19 include increased costs, limited sales and, in some cases, redundant diversifications, says Phil Kirkpatrick of accountant Old Mill.
The added pressures of Brexit mean budgeting is more important than ever, he says, highlighting some important dates to plan for.
1 October 2020 or 1 January 2021
Corporation Tax for limited companies with a December year end is due on 1 October.
Those with March year ends will have until 1 January 2021 to pay.
“The Covid-19 crisis was only just taking hold in March, so profits for last year were probably higher than at present, leading to correspondingly larger tax bills,” Mr Kirkpatrick points out.
“However, since then, a combination of higher costs and reduced income may have depleted the cash generated, leaving little left over to pay tax.”
Those who do not have the cash, or the scope to extend borrowings to pay these tax bills, may be able to agree a time to pay arrangement with HMRC, which will spread the liability over several months.
31 January 2021
This is the deadline for making balancing payments of Income Tax and National Insurance contributions for sole traders and partners.
Many have also taken advantage of the government scheme to defer the 31 July 2020 payment on account until 31 January 2021, so that payment will be correspondingly higher.
The payment will be based on income in the tax year to 5 April 2020, most of which was pre-crisis, making it likely that income levels will be higher than for the current year.
Options to reduce the cash squeeze this presents for many include reducing the 2021 payment on account which will be due in addition to the balancing payment.
Completing the 2019-20 tax return as soon as possible will allow taxpayers to discover their liability and decide whether to reduce the 2021 payment on account, says Mr Kirkpatrick.
31 March 2021
Chancellor Rishi Sunak postponed VAT payments falling due during lockdown until 31 March 2021, one of his first measures to help businesses affected by the pandemic.
While this will affect suppliers more than most farmers, and could put some suppliers under extreme cash flow pressure, contractors and some diversified farm businesses need to plan how to cope with this demand for cash.
Traditionally, quarterly land rents are payable by 25 March, 24 June, 29 September and 25 December; three of which closely coincide with other key cash-hungry dates coming up over the next few months.
“If forecasts show that these dates could be a problem, now might be the time to start negotiating with your landlord. A switch to monthly rental payments or another agreed payment schedule would help to smooth cash flow,” Mr Kirkpatrick suggests.
Repayment of loans under the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS) will begin from April 2021 for some.
These loans began to be advanced in April and May 2020 with a closing date to join of 4 November 2020. Most included a 12-month repayment holiday.
CBILS loans were assessed for affordability (often assuming a return to 2019 trading levels by the time the repayments commence). The BBLS loans were issued with no such checks.
Borrowers need to plan for this too. However, if cash is available and the loan is no longer needed, there are no charges for early repayment and doing so would avoid future interest costs, Mr Kirkpatrick says.
Document agreements on changes to rents
TFA chief executive George Dunn stresses that if an alternative rent payment schedule is agreed with the landlord, it must be adequately documented to protect the tenant.
A rent memorandum is the gold standard, he says, but otherwise an exchange of correspondence clearly setting out what has been agreed is sufficient.