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Tax planning for farmers – Use your software to help you act now

Over the last few years, we have worked hard as a firm to provide training to the farming community in what might be described as basic bookkeeping. To meet government requirements concerning VAT reporting, most businesses are having to use an online accounting software package. This has seen, for the most part, the end of the manual handwritten ledger and clients dropping in a bag of their accounting records at the end of the year.

The use of these accounting software packages should mean that every business has key financial and business performance information at your fingertips as well as an opportunity to work with your accountant to carry out pre year-end tax planning.

With the majority of farming businesses having a March/April year-end, subject to you getting your bookkeeping up to date, this gives you just about enough time for some tax planning to be considered and undertake actions to mitigate future tax. And whilst I appreciate the impacts of the national lockdown and the wet winter could mean that mitigating tax is the last thing on farmers minds at present, the end of January tax bills might have refocused attention.

For some, the effects of Covid-19 and general uncertainty as to what the future looks like has seen businesses adopt a more cautious attitude when it comes to investing in new plant and machinery or incurring costs that potentially could be deferred. Instead, many are choosing to pay down loans or save cash. However, with milk, beef and lamb prices holding up very well over recent months, together with receipt of the Basic Payment Scheme payment and in some cases Self Employment Income Support grants, this approach could result in a significantly higher farmers taxable profit and tax bill for the current year which could potentially be a nasty shock!

Therefore, now is the time to go back to the accounts package and carry out a detailed review of your projected performance for the 2020/21 with your accountant in order to assess tax liabilities that might arise.

Whilst not going into detail, the timing of necessary capital expenditure around the year-end can significantly impact a business’ taxable profits with tax being potentially deferred. Is now the right time to push on with a capital purchase? Whilst not wanting the tax tail to wag the dog, if the expenditure is needed for the business, should it be accelerated?

Similarly, should you be bringing forward potential repairs or other expenditures to benefit from earlier tax relief?  Should you be considering when livestock sales might best be made around the year-end?  This will have an impact when the profit on the sale is accounted for. Going further, is now the right time to be making a personal pension contribution, declaring dividends or confirming what interest is to be paid on directors’ loan account balances if you are trading through a company?

There is a lot to think about and with lockdown meaning we cannot go far, I would suggest that this is something that you should be thinking about.

As always, we at PKF Francis Clark are here to help. If you have any questions, please do not hesitate to contact me or your usual PKF Francis Clark contact.

FEATURING: Brian Harvey
As head of PKF Francis Clark’s agricultural sector group, Brian manages a dedicated team of agricultural accountants and tax advisers. He hails from a Cornish… read more
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