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This article was originally published in the Western Morning News on Wednesday 23 March 2022.
I am having many conversations recently about the rising cost of well……everything! Farming is certainly not an industry sheltered from this problem with global price rises having an impact on everyone. Fertiliser hit a new high in March, up to nearly £1,000 a tonne and many of my clients have said they are either holding back from purchasing or looking at alternatives.
This change has made people think ahead. Will prices keep prising? What else will rise? And should we do something now to protect our business?
Budgeting has always been a great tool to assist with forward planning
It is as important as ever now to forecast where your business might be in the coming months, years or even further ahead. This particularly so in the farming industry with the reduction in subsidy income over the next few years and move to the new Environmental Land Management Schemes. If you have not already, I would strongly suggest you look at what the reductions will be on the government website or speaking with your land agent.
I have seen budgets written on paper, excel or using software, so it really is whatever works best for you. Many software providers provide add-ons to their accounting packages, such as Figured integrated with Xero. Figured is an online software providing farmers with a better way to financially manage their farming operation. It will pull information from your existing accounting records, removing the need to try and remember how much you paid for something last year.
The benefit of budgeting add-ons is just one of the perks of cloud software like Xero. The deadline for Making Tax Digital (MTD) for VAT has now passed and you can no longer submit your VAT returns as you could previously because you were under the VAT threshold. I would suggest you speak to your accountant about this if you have not done so already.
Planning for MTD for income tax
Also on the horizon is MTD for income tax, delayed until April 2024, but nonetheless it is coming! Keeping digital records will be even more important and again something to plan for and speak to your accountant about. This MTD for income tax brings with it a reform by HMRC to the current basis period rules for income tax. This is the way trading income is allocated to tax years. Current rules are based on a business’ accounting date and can create overlapping basis periods, which charge tax on profits twice and generate corresponding overlap relief.
The measure proposed is to simplify the basis period rules for the self-employed so that a business’ profit or loss for a tax year is the profit or loss arising in the tax year itself, regardless of its accounting date. This removes the complex basis period rules and prevents the creation of further overlap relief. If you do not know what your overlap relief is then again, I suggest you speak to your accountant.
There are proposals to allow for spreading of excess profits in the transitional year of 2023/24 over five years. My advice would be to think about how these changes will impact you. Particularly so if your current accounting year is not 31 March or 5 April. Forecast ahead and think “how is my business doing now” and “what am I expecting to see in a few years time”.
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Our specialist team of agricultural accountants have extensive experience with all the issues that farmers might come across with their finances. If you have any questions about this article, please get in touch. To find out more about our agriculture sector, please click here.