Recent increases in prices, combined with Covid-19 self-employment support and loans, are ‘artificially’ inflating many farm business cash flows, Omagh-based accountant Seamus McCaffrey has warned.
McCaffrey said: “I am also aware that farm businesses have the option of postponing the payment of second tranche of their 2019/2020 tax payment to the end of January next. Normally, this payment would have been paid at the end of the week just past.”
“But it’s important for farmers to think ahead and consider what might be coming down the track in the longer term.
In the first instance, the end of January next year will see those farm businesses who did opt to defer their second payment of this for 2020 having to pay that outstanding bill plus the first payment on account for the current financial year.
“In addition, loan payments required to be made in connection with the Covid-19 support arrangements, will kick in April 2021.
“As a consequence, many farm businesses could be coming under severe cash flow pressure during the early months of next year. And, of course, there is no way of predicting how commodity prices will be faring at that time.
As farmers are only too aware, the prices they receive for their produce can fluctuate widely on an almost monthly basis.
Pay your tax balance now if you can
Given this scenario, Seamus is advising farmers to pay the second tranche of their 2019/2020 tax now, if that can at all afford to do so.
He is also pointing out that the self-employment support payments on-offer from government represent taxable income.
He continued: “I would also advise farmers to have their accounts for 2019/2020 drawn up as a matter of priority.
“This will give then give them time to sit down with their accountants and discuss what tax mitigation options are available. These include tax averaging and pension opportunities.
For example, payments into a pension scheme constitute a legitimate business expense and can help take a business out of the 40% tax bracket.
“For other farmers, it will be a case of assessing their eligibility for tax credits. These are determined on the total taxable income of the farmer and spouse.”
Seamus added: “Farmers with a son or daughter employed on the farm completing a third-level educational course in agriculture-related subject can pay the student a training allowance of up to £15,400/year. This payment is an allowable expense to the farm business."