Farmers are frequently spending money which should have been put aside for their annual tax bill, a Northern Ireland agricultural tax expert has warned.

Speaking at the Farm Family Key Skills programme Business Planning Seminar at Loughry College, Gabrielle McArdle from accountancy firm CavanaghKelly said farmers were leaving it too late to find out how profitable the year had been.

Leaving it too late

She said: “If you have a good year – great – OK, you’re paying tax but you’ve generated profits. But if you find out you’ve had a loss-making year, that’s too late; you’ve almost completed your second year.

It’s too late at that stage to find out something’s wrong in the business because you’re nine months into the next year before you’ve become aware of that.

“You almost need to know how things are operating on a monthly basis – or at a minimum, a quarterly basis – and have no surprises when the accounts are prepared.

“Invariably, the accounts are done just before the tax is due and that in my mind is too late for you to make decisions in that business.

“The frightening thing is the number of discussions I had towards the end of January where I was advising people what their tax bill was for the previous year and it was a complete shock.

‘No money’

“They were saying, ‘I’ve no money to pay the tax bill because I’ve bought X, Y and Z.

Because it’s surplus cash they’ve went and bought a new tractor or machinery when actually that money should have been saved up for the tax bill.

So cash flow is important; it’s important to know what your liability – or projected liability – is at any point in the year to know how profitable that year is.

McArdle warned: “The wrong thing to do is rely on the subsidy. A good time to look at it is in the quarterly VAT return because all the expenses are there but we don’t have the income projections. So at that time we will ask if you have any idea of what your income will be for the quarter – whether it’s a beef herd or dairy the principle is the same.”

Signs of trouble

McArdle said that having to use personal credit cards or a salary from another householder to fund the farming business was a sign that something was wrong in the business.

“If there is a problem talk to the suppliers early and if debt is still a problem talk to an insolvency practitioner and your accountant,” she said.

A member of the audience asked what proportion of farmers relied on the subsidies for a profitable business.

McArdle replied that from her professional experience, her “gut feeling” was 60-70%.

“That’s something we feed back to the department as well and the department feed back to Stormont,” she said.